UK net zero gas and infrastructure operator IOG has skipped the Southwark A1 well and prioritized the Blythe H2 well for its 2023 drilling program in joint venture with CalEnergy Resources. The company noted that the well is lower risk and does not require hydraulic stimulation as Blythe is a more permeable reservoir.
The Blythe H2 well is estimated to deliver higher gas production rates, which are expected to initially be in the range of 30-40 mmscf/d after a period of liquids displacement in the Saturn Banks pipeline, driving a higher cash flow. It would also increase the ultimate recovery of Blythe’s gas reserves.
The company expects to turn the bit on H2 in March and will take approximately three months to drill, complete and connect. The well has a budgeted net cost to IOG of £13 million ($15.6 million), including associated rig modifications, before any potential tax shelters or investment allowances, giving a potential return of less than 3 months.
Meanwhile, Blythe continues to produce from the H1 well at more than 90 percent uptime to date, with gross gas rates in the 15-20 mmscf/d range, fluctuating due to down cycles of terrestrial liquids, together with the production of condensates and associated water.
The company has suspended the Southwark A2 well and initiated a full review of operations and results. Well A1, which was suspended in October 2022 following fluid losses in the upper hole section, is being re-entered to safely suspend the well in front of the platform being moved to Blythe.
The new management team is rigorously evaluating the company’s subsequent investment options, including drilling plans, to optimize the allocation of capital expenditures.
This would include reassessing the plans and costs of Southwark A1 in light of the results of A2. Under current plans, A1 would take about five months to drill, complete and connect, with a budgeted net cost to IOG of £16 million ($19.2 million). It would also include the analysis of further remedial options for the A2 and the optimization of plans for the Kelham North/Central and Goddard appraisal wells, which would each cost an estimated £8m (9.6m dollars) net to IOG under the existing platform contract.
“In light of the Southwark A2 results, it is prudent for us to pause activities at Southwark. With this in mind, the JV has chosen to drill the Blythe H2 infill well ahead of Southwark A1. As a conventionally completed well, H2 has a lower risk profile, lower cost and can be put into production faster than A1. H2 can materially increase our production rate, which would target our cash flow this year,” said Dougie Scott , COO of IOG.
“As a new management team, we have assembled a multidisciplinary task force to conduct a comprehensive root-and-branch review of A2, from planning and design to execution. While the goal at short term is to inform the optimal solution for A1, the review will also include a detailed assessment of risks, mitigations and optimization plans for other similar assets.As we move forward, our investment decisions will be rigorously tested to ensure that uncertainties are understood, risks are managed effectively and results are achieved as expected.”
“The joint venture is well aligned with the compelling economic and operational case for prioritizing the Blythe H2 well, which can quickly recover at current gas prices. This will help boost cash flow from mid-2023 while giving us will enable future plans to be carefully assessed,” added Rupert Newall, IOG’s CEO.
“Despite Southwark’s recent challenges, we have a stable flow from Blythe to an infrastructure system that we own with a high quality and supportive partner. The aim of the H2 is to significantly improve this production, reduce water production in the pipeline and minimize the associated opex,” Newall said.
He also noted that the Southwark platform and the 24-inch connection to the Saturn Banks pipeline system are of significant strategic value to IOG as a conduit for future production. This could include the joint venture’s Central Hub assets and P2589 license assets, plus potential 33rd round awards and third-party gas.
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