A Renaissance or a Dark Age?
The increasing maturity of the North Sea is forcing explorers west, towards the frontier Northern Atlantic Margin in search of the next oil province. In response, both the Irish and UK governments have made the Rockall Basin available for licensing in the recent 2015 Atlantic Ireland Licensing Round and the ongoing UK 29th Frontier Licensing Round. Does this herald a renaissance or will a dark age prevail?
The Rockall Basin trends north-east to south-west, extending across the Irish and UK sectors of the North Atlantic Margin. Rockall is a failed rift of Mesozoic age approximately 1,200 km long by 300–400 km wide, located 100–500 km from landfall in water depths of 400–3,000m (Figure 1).
Difficulties arising from distance to landfall, deep water, harsh weather conditions, lack of infrastructure and intrusion-related seismic distortion have deterred exploration.
The combination of historically poor seismic quality and coverage in addition to a lack of well control has resulted in a poor understanding of the structure and sedimentary fill of the basin. Such obstacles result in both high exploration and development costs and large uncertainty, resulting in high risk, all of which discourages explorers.
What has Changed in Recent Years?
Figure 2: Location of modern and vintage seismic in Irish and UK Rockall Basin. (Source: Hannon Westwood)
The increasing maturity of the North Sea is forcing explorers west, towards the frontier Northern Atlantic Margin, in search of the next oil province. In response, both the Irish and UK governments have made the Rockall Basin available for licensing in the recent 2015 Atlantic Ireland Licensing Round and the ongoing UK 29th Frontier Licensing Round. In an effort to encourage bids both governments provided subsidised 2D seismic prior to the application deadline, allowing interested parties a glimpse at what Rockall could offer (Figure 2). In addition to availability, the quality of 2D seismic has been dramatically improved by utilising modern acquisition and processing techniques. Acquisition employing long streamers and the preservation of low frequencies during processing has resulted in enhanced imaging below the Paleocene igneous intrusions (Figure 3).
Better data presents enhanced stratigraphic detail, allowing increased certainty in prospect generation and de-risking, particularly in the UK sector where igneous complexes are more prevalent. Improved seismic may open up deeper plays in the UK Rockall where reservoir targets have historically been Paleocene or Eocene in age. Exploration success on the Canadian Atlantic Margin has also piqued interest in the Irish conjugate.
Figure 3: Modern vs. vintage seismic comparison in the Irish Rockall Basin. Improved subbasalt imaging can be seen on modern seismic in both Basin A (20 km) and Basin B (30 km). (Source: Petroleum Affairs Directorate)
Figure 3: Modern vs. vintage seismic comparison in the Irish Rockall Basin. Improved subbasalt imaging can be seen on modern seismic in both Basin A (20 km) and Basin B (30 km). (Source: Petroleum Affairs Directorate)
Exploration Success on the Conjugate Margin
The Flemish Pass Basin on the Canadian Conjugate is a rift margin of similar age to the Rockall Basin where exploration has had commercial success. It is situated 500 km east of St. Johns in water depths of 1,100m.
Figure 4: Location of the Flemish Pass Basin and commercial discoveries. (Source: REP)
Since 2003, a total of 13 wells, ten exploration and three appraisal, have spudded in the Flemish Pass (Figure 4). The wells targeted structural traps with Upper Jurassic and Lower Cretaceous reservoirs, charged by Kimmeridgian source rock and capped by Berriasian shales. Twelve of these – nine exploration and the three appraisal wells – have targeted the Upper Jurassic and four of the exploration wells are considered to have made commercial discoveries, equating to a commercial success rate of 44% for the basin: Baccalieu (Lower Cretaceous); Mizzen, Bay du Nord, Harpoon and Bay de Verde (Jurassic) (REP 2016). Post-appraisal estimates of 300–600 MMboe for Bay du Nord and tie-backs have reduced the initial discovery reserves shown in Figure 5. However, results remain encouraging and the Flemish Pass Basin is set to become an important producing area for Statoil post-2020.
Figure 5: Discovered commercial resource per year and finding cost comparison. (Source: Hannon Westwood)
Figure 6: Comparison of the Flemish Pass Basin and Rockall Basins. (a) In the Flemish Pass seismic line discoveries are offset. Orange represents Tithonian seal, green top Jurassic. The Cretaceous in Baccalieu must thicken eastwards. Seismic data from Nalcor-invested TGS/PGS multiclient 2D broadband long-offset seismic programme offshore Newfoundland (2012-2014). (b) The Rockall Basin from Schofield et al. (submitted – Petroleum Geology Conference Series, Challenges of Future Exploration within the UK Rockall).
The question remains whether exploration targeting similar Jurassic and Cretaceous plays in the Rockall Basin could have greater or equal success. Seismic data over the Flemish Pass (Figure 6a) demonstrates a similar horst and graben structure to the section across the UK Rockall Basin (Figure 6b). Both basins contain thick Cretaceous sequences, but to date, only one commercial discovery has been made in the Cretaceous of the Flemish Pass. While five wells in the UK Rockall penetrated the Cretaceous, the only discovery made there was in the Paleocene with well 154/1-1, which discovered an estimated 487 Bcf (87 MMboe) at Benbecula. The majority of the oil discovered in the Flemish Pass is in the Jurassic succession (Figure 5). The Dooish discovery in the Irish sector found a 200m gas-condensate column in Jurassic and Permian sandstones with a resource estimate of 293 Bcf (52 MMboe) but the structure was not filled to spill.
Kimmeridge Clay is considered to have been deposited between Ireland and Canada during Mesozoic rifting and is the proven source rock in the Flemish Pass Basin. A Carboniferous source may also be viable in the Rockall; however, source rock distribution, quality and maturity is not fully understood. The UK Rockall section highlights widespread igneous intrusion into the Cretaceous stratigraphy which are commonly considered to act as barriers to migration and reservoir compartmentalisation. However, research by Schofield et al. suggests that igneous intrusions may act as migration pathways and could form a key element of petroleum systems in this region. Conversely, the Flemish Pass has no intrusive features, potentially highlighting some differences in crustal thickness and both structural and thermal history.
Benchmarking a Rockall Commercial Development
The development of discoveries in regions with adverse operational conditions requires a large resource base in order to warrant high CAPEX and OPEX. To develop a benchmark for the minimum economic reserve size required for development in the Rockall, Hannon Westwood used the Rosebank Discovery as an analogue development scenario. Rosebank is situated 140 km west of Shetland in water depths of 1,100m, making it comparable to Rockall. The Paleocene reservoir is estimated to contain 256 MMbbls oil and 347 Bcf gas (314 MMboe). Plans for its development include a new-build FPSO for oil separation, processing and export in conjunction with a ~250 km gas pipeline connection to the nearest export infrastructure. The development has not yet been approved but cost estimates are currently in the region of $8–10 billion but historically had reached $12.5 billion.
All fixed data were taken from the Rosebank development scenario, including UK fiscal system inputs (Figure 7). This should be taken into account when considering Irish Rockall prospectivity, which is subject to a different fiscal regime. Full field economics were run based on two variables of resource volume (300–1,000 MMboe) and CAPEX ($7/10/15 billion).
Figure 7: Experiment to determine reserve size required for commercial discovery in the Rockall Basin and resource volumes for identified prospects. (Source: Hannon Westwood)
Results show the reserve size that is required to bring a discovery to production utilising a low, mid and high case CAPEX under various commodity prices. Assuming an oil price of $60/barrel and a development cost of $15 billion, prospects of less than 1 Bboe unrisked resource barely break even, indicating that they cannot be commercially developed. At a mid-case development cost of $10 billion, about 650 MMboe resource breaks even, while at $7 billion CAPEX, reserves as low as 450 MMboe do. However at an oil price of $40/boe only the low CAPEX development can break even at reserves in excess of 800 MMboe. The analysis highlights the impact of high CAPEX on a project’s breakeven oil price, a key factor in the decision to spud an exploration well.
Hannon Westwood holds an inventory of Rockall Basin prospects with unrisked resource estimates that lie within the graphed volume range. The UK Rockall has one 560 MMboe prospect and a further two that exceed 1 Bboe in the Paleocene. The Irish sector has 12 prospects that range between 300– 1,000 MMboe, targeting primarily Jurassic and Triassic-aged reservoirs. If the lowest development cost of $7 billion is assumed and the 44% chance of commercial success from Flemish Pass is applied, prospects or potential clusters with an unrisked resource estimate less than 1 Bboe should not be targeted. This whittles the Rockall prospect pool down to three viable prospects, one in the Irish sector and two in the UK sector.
Europa Oil and Gas recently identified 300–600 MMboe of unrisked resources on LO 16/22 (2015 Round), which is situated in the perched Padraig Basin on the eastern flank of the Irish Rockall. According to this breakeven analysis at mid-case development costs the higher end of the unrisked resource breaks even at $62/barrel. To achieve the 20% rate of return (ROR) necessary for attracting investment, an oil price of $98/barrel is required under the modelled scenario. This does not include additional prospectivity that may be found on the licence or future tie-back options that may be available pending commercial discovery in the South Porcupine. The analysis includes a tax break in the form of the UK investment allowance, something that is not currently available under the Irish fiscal regime, meaning that the economics presented are more positive than perhaps they would be in reality.
Renaissance or Dark Age?
The uptake of acreage in the Rockall Basin in the 2015 Atlantic Ireland Round was disappointing. Despite this, the entrance of global deepwater players Statoil, ExxonMobil, Eni, Woodside and Nexen in the South Porcupine is considered to be encouraging and if commercial reserves are discovered exploration efforts may expand into the Rockall Basin. Results from the UK 29th Round have yet to be announced and may attract players from the Canadian conjugate margin.
For Rockall to succeed, acreage uptake by an operator with deepwater experience and sufficient capital for 3D seismic acquisition followed by exploration drilling is required. A high impact commercial discovery made by a company that can afford to put the necessary infrastructure in place is essential to open up the basin.
Multi-million barrel discoveries made in the Flemish Pass are encouraging and successful plays can be traced across the Atlantic to the Rockall. Both margins require a large reserve base for commercial development and Hannon Westwood analysis suggests that under mid case CAPEX, in order to generate a 20% ROR in the UK sector, a reserve of 900 MMboe and an oil price of $69/ barrel is necessary. The Irish sector potentially requires an even larger critical volume as a consequence of differences in tax regimes.
Improved seismic imaging of the Rockall Basin will provide the key to understanding its structure and stratigraphy and may unlock prospectivity. It represents the first step in the progression from exploration in a frontier area to commercial discovery. Drilling costs have reduced by up to 50%, allowing for lower cost deepwater exploration drilling. Companies with free cash flow have the opportunity to firm up reserves in advance of a commodity price rise.
The future of the Rockall is dependent on the success of the South Porcupine and the results of the UK 29th Round. Commercial discoveries that may be made in the Rockall Basin on the back of the 2015/2016 licensing rounds will have a long lead time to both drill and develop and much could happen in the interim. However, exploration in frontier provinces is a long term game and we are unlikely to see any drilling in the Rockall before 2020 and the development of any reserves from the area in less than ten years after that. Oil price, costs and taxation cannot be accurately predicted and so frontier exploration on the North Atlantic Margin is currently the province of large integrated multi-nationals who can afford the cost and risk of such ventures in their portfolios.
