Norwegian exploration and production firm Noreco is facing uncertainty after its chairman resigned with immediate effect as the firm deals with significant write-downs on reserves at key production assets.
Noreco says, according to updated reservoir modeling by operator Dong Energy, its 15% share of the reserves at the Oselvar gas field in the Norwegian sector of the North Sea need to be written down by 50-75%.
The firm is also facing a write-down on its 20% share in the E.ON operated Huntington field, due to production budgets by the operator indicating a “significant reduction” compared to Noreco’s current estimates. This could result in a NOK700 million write down, said Noreco.
In addition, there has been an unplanned shut-down on the Huntington field, due to a restriction in the Central Area Transmission System (CATS), operated by BP.
While the Oselvar write-down is not expected to impact Noreco’s cash flow and liquidity in 2014 and 2015, the Huntington development will impact the firm’s cash balances through 2015 and onwards, Noreco said today. Further, the unplanned shut-down has created uncertainty whether Noreco will be able to meet its financial commitments also towards the end of 2014.
The news came as chairman Morten Garman and a director, Erik Henriksen, gave notice of immediate resignation from the board of directors.
Oselvar, which came on stream in 2012, is a subsea tie-back to BP’s Ula platform in the Norwegian sector. The Huntington field, in the UK North Sea, is produced via the Sevan design Voyageur Spirit FPSO (pictured). A planned shut down of the CATS system meant the field was also shut-in for most of August.
Noreco says: “The company is now working with the operator and the other partners in the Huntington field in an effort to clarify the situation. Pending final assessments and cash flow considerations, the company, together with its financial advisors, is actively looking at potential mitigating measures needed under the circumstances.”
The firm will also work with the operators and license partners on Oselvar and Huntington to fully understand the new reservoir data, and explore ways to improve production levels at the fields, Noreco said.
According to Noreco, the write-down on Oselvar is estimated at ca. NOK100 million post tax, or about 25% of the asset’s current net book value to Noreco.
At Huntington, CATS operator BP had informed E.ON that that Huntington’s gas export will be restricted from 1 October 2014. Huntington will be able to produce up to about 3500boe/d net to Noreco until 18 October, after which it will be unable to export any gas until the end of October and for the planned shut-down from 1 November 2014 until 5 December 2014, resulting in no oil production at Huntington.
According to another Huntington partner, Iona Energy, the reason for the restriction is a problem with a third party field exporting gas within the CATS system. Iona said the exact nature of the incident is unknown. Iona also said it considered any carrying value write down unjustified, based on current data. Iona considers Huntington to have 29MMboe gross 2P reserves.
E.ON is exploring with BP if it can export some gas through CATS in the restricted periods. E.ON is also looking at whether gas injection into the Huntington reservoir could be feasible, to allow oil production to continue.
Meanwhile, Noreco said a subsea storage tank at the Siri platform returned to use on 25 September, which meant a temporary shuttle tanker solution has now been terminated. The return to use of the subsea tank is part of a larger project to rectify structural issues at the Siri platform, a permanent repair for which has now been found, with production from the satellite fields Nini and Cecilie partly resumed.
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