WATCHING THE WORLD TAKING PARTNERING TO THE LIMIT

April 24, 1995
With David Knott from London During the last 3 years, BP Exploration Operating Co. has embarked on a string of projects to be carried out under alliances with contractors. The latest partnering deal came to light Apr. 13. Under a 3 year program, BP and John Wood Group plc, Aberdeen, will increase gas production from BP's Villages, Amethyst, and West Sole fields in the southern North Sea.

During the last 3 years, BP Exploration Operating Co. has embarked on a string of projects to be carried out under alliances with contractors.

The latest partnering deal came to light Apr. 13. Under a 3 year program, BP and John Wood Group plc, Aberdeen, will increase gas production from BP's Villages, Amethyst, and West Sole fields in the southern North Sea.

Wood Group said this contract takes alliances a step further by involving the contractor at the reservoir evaluation stage: "The challenge will be to provide gas growth through platform debottlenecking, extended reach drilling, subsea satellite development, and unmanned wellhead platforms."

Although BP is perhaps the greatest proponent of such partnering deals in the U.K. offshore sector, Sun Oil Britain Ltd. has pushed the concept furthest.

In February, Sun announced a joint venture with Brown & Root Ltd., London, to manage and operate U.K. Block 16/21a Balmoral field and Stirling prospect.

This is the first time a contractor has been given a say in running a North Sea facility. Luke Lewis, specialist adviser for Sun operations, traces the deal to Sun's decision to buy rather than explore for new assets.

MIGRATION

"Sun withdrew 2 1/2 years ago from exploration," Lewis said, "so there were no new prospects likely for operating. We had a valuable asset, the Balmoral floater, to manage. But we recognized there might be a hemorrhaging of key staff if we could offer them no future."

Norman Chambers, managing director of Brown & Root Energy Services, Europe and Africa, said 88 staff members transferred from Sun to Brown & Root under the deal.

The main reason behind Sun's decision was a conviction that contractors can do some field operating tasks more cost effectively. "Sun had a problem as a single stringer," Lewis said.

Chambers said, "Brown & Root's procurement department buys for nine or 10 other North Sea operators. This brings a significant reduction in purchasing costs for Sun."

CASH STREAMS

The contractor's strategic goal is to secure contracts in which oil companies own the reservoirs and Brown & Root provides the infrastructure to produce and transport oil and gas.

Chambers said, "We would also look to finance infrastructure as an equity participant, but we would remain as a contractor. We wouldn't want to work with some oil companies while competing as an oil company against others."

Chambers said other operators have been intrigued by the Sun venture. One was said to have admitted it should be doing the same as Sun but wouldn't be there for another 3 years.

"In less than 20 years," said Chambers, "maybe as early as the turn of the century, three quarters of our business could be from contracts to produce. We are now talking to eight oil companies representing 40 prospects for contracts to produce.

"Returns on investment are greater the closer one gets to the reservoir. Contracts to produce will give us access to streams of cash to help smooth out the cyclic parts of our business."

Copyright 1995 Oil & Gas Journal. All Rights Reserved.