Energy – Fraser Weir, Netherlands Operated Assets Director
Fraser Weir of Centrica Energy speaks about the company’s operations in the Netherlands– discussing the role of the Greater Markham hub and the F3-FA development, which marks a real effort to grow the business’ producing assets. Weir details the innovative approach taken to develop this latter location- innovation being key to Centrica streamlining its operations and reducing costs.
Your move to Centrica marked a return to practical operations having worked extensively for a leading consultancy firm. What prompted this move from the theoretical to the tangible?
I spent the early part of my career with Shell– specifically Shell’s operating arm here in the Netherlands, Nederlandse Aardolie Maatschappij BV (NAM). This was an operational role, and was indeed very much immersed in the practical aspects of oil and gas work. From there I moved to The Boston Consulting Group, where I worked across multiple industries and multiple projects. At the end of the day, in such a company, your role is advisory and someone else takes the decision. The responsibility and reward of making real choices attracted me back to the ‘hands on’ segment of the oil and gas industry.
For our international readers, could you give us an overview of Centrica’s operations in the Netherlands?
Centrica Energy’s Exploration & Production business is split into three regions, namely Norway, North America and the UK/Netherlands as one region. I am part of the UK/Netherlands leadership team. From the Netherlands, we manage a mixture of fields, some of which are in UK waters. We operate two main hubs – the Greater Markham Area which has a number of satellite platforms connected to it, of which Centrica officially operates three as well as a fourth through a service agreement. Total E&P Netherlands operates one platform and one subsea tieback connected to this field.
Greater Markham is a large hub, producing circa five million cubic meters of gas daily. We are the operator of the hub- though with minority shareholding.
The second hub, or field is F3-FA, a gas condensate field. It was discovered in 1971 by NAM who were unable to develop the asset at that time. We utilized a self-installing platform concept which has been running since 2011. It is a single well development, drilled through a leg of the platform and represents a medium sized resource. It requires a great deal of processing due to the high volume of condensate in the resource- it is a unique development project.
This field not only has a high degree of condensate in it, but also is in a relatively remote area with poor access to pipeline infrastructure. Why pursue this asset?
Centrica originally purchased a company called Venture Production a few years back- this project had been in their portfolio. Venture’s strategy had been to pursue orphaned fields. The resource was probably too small to attract the attention of the majors; Centrica however, has proved to be a business of ideal size to tackle it. F3-FA was difficult to tie back, as the condensate has to be processed. Equally a standard platform was considered to be ‘over engineering’ for a single well. As such, the self-installing platform was conceived which was able to deliver these resources cost effectively. It is a fully working platform with glycol dehydration and compression systems. Our plan is to produce until the field is depleted, at which point the platform can be relocated to another resource. Its reusability delivers the platform’s commercial viability.
What are the qualities inherent to Centrica creating the agility to deliver these resources profitability?
One is cost – the larger players have inbuilt overheads, for example R&D facilities, which deliver fantastic capabilities, but at a cost. The larger players will seek larger volumes to cover these costs. Centrica needs to deliver via a leaner, more cost-efficient model. The F3-FA platform took three years from concept to production, which is exceptionally fast. This early production improves the commercial model significantly- particularly as gas prices were high in the first years of production. Speed and effective use of the supply chain are what delivers success for Centrica in this sense.
With regard to Centrica’s work in collaboration with other companies operating around the greater Markham hub, and your efforts in developing re-useable platforms- how vital is the imperative to reduce costs?
These are historical projects, taken forward under the economics at that time. At the moment, the North Sea is facing a significant cost challenge- highlighted by OGUK in a recent report in the UK. In the Netherlands, for many years collaboration has delivered cost savings. With regard to expenditure on logistics, for example, Centrica operates in a helicopter pooling scheme with other NOGEPA (the Dutch E&P players’ association) members and is also part of a marine service vessel pool. This collaboration brings cost benefits to all the members of the pool. There could be lessons for other countries from this model and this form of collaboration is being proposed and encouraged following the recent Wood Review.
Another important element in reducing costs is the fact that EBN is an important contributor to developments in the Netherlands– as a 40 percent shareholder. This means there is always a partner to share risks and costs, but also to bring challenge to the joint venture. EBN and NOGEPA have cooperated for several years in a cross-industry benchmark of operating costs.
What are Centrica’s plans for expansion?
Centrica has a good track record of acquisition – purchasing Canadian assets for GBP 600 million last year and the year before undertaking a billion GBP acquisition in Norway. Centrica is willing and has the confidence to invest when required- a notable advantage. This is combined with the fact that, despite being part of a wider, large utility company, decisions here can be taken quickly if necessary. The UK and Netherlands is the home base for Centrica- we are deeply committed to this region.
Right now, the focus is on maximizing the value of our assets- as I mentioned there is a cost pressure coming through the industry at the moment, which is being felt by the whole supply chain. It is a global problem, though the UK is experiencing this situation particularly severely at the moment. At the Greater Markham hub, the business is proactively seeking to develop its assets in the face of this cost-tightening situation including spudding an exploration well shortly. Two new in-fill wells have been hooked up this year, both having been developed using our successful fracking experience. Lots of activity therefore, is happening for Centrica in the Greater Markham area. A key statistic to remember is that 22 years after Markham started production, the hub is still producing at 50 percent of what it was at its peak. Chasing down the next opportunity is something which Centrica does well.
Massively-multifracked wells are a Centrica specialty and one of the developments we completed this year used this technique in a subsea well. To my knowledge this is unique, and we think we can unlock more volumes using this technology.
Production efficiency and lifting cost are our key benchmarks. The former shows the extent to which we are maximising the full potential of the asset. In the UK, production efficiencies have fallen significantly across the industry, and the common understanding is that this fall has been less marked here in the Netherlands, although this has not been structurally benchmarked. Until very recently we had been producing over 80 percent efficiently consistently, which is high for a mature asset.
The next key metric is lifting cost, and the biggest impact one can have on this is ensuring that production volumes remains high. Across the North Sea there is concern over increasing costs and Centrica is highly focused on cutting inefficiencies to keep lifting costs down. After lifting costs, finding and development costs are also important to ensure a sustainable business in the future.
How is the innovation agenda assisting you achieve your ambitions?
Centrica has representatives on the Technology Leadership Board in the UK. We also create innovation workshops internally to look at developing new concepts and ideas and here in the Netherlands we work closely with NOGEPA and TNO (a scientific body working in the Netherlands) in order to develop for example, more advanced sub-surface techniques. EBN is also, as a non-operating participant a useful font of new ideas which we can adopt and improve on across exploration acreage.
Tangible examples of what this innovation agenda achieves include our self-installing platform and our novel fracking techniques.
What is the core emphasis of your strategy to achieve your goals?
In the UK and Netherlands, we seek operational excellence- reserves may be declining but we are seeking to manage that decline and continue to extract maximum value from this resource. Centrica does have the capacity to invest and will seek to develop substantial opportunities when available. Capitalising on existing hubs is one route to ensure maximum production- we are actively looking for openings where this is possible. The Netherlands has a low opex and capex base, and offers a high success rate with regard to exploration and infill drilling. It ticks lots of boxes with regard to moving forward in this regard, even if it is less liquid than the UK market for example.
Acquisition of assets is circumstantial- we will take the right opportunity when we see it.
In your eyes, what is unique about Centrica?
Centrica is an integrated energy company and has proved successful in its E&P activities. As a business developing gas resources, as well as retailing them, we always have a route to capitalize on this resource.
Despite the fact that, in the Netherlands I sometimes have to explain the ‘who’ of Centrica, given the business is not a large brand name here as in the UK, the business has a good track record of developing assets and has the balance sheet and resources to invest for the future.