Heat turns up on flaring and venting of greenhouse gases
The Oil and Gas Authority (OGA) has expanded its benchmarking to the flaring and venting of greenhouse gases on the UK Continental Shelf (UKCS) for the first time – detailing flaring and venting activity levels in the North Sea and the resulting contribution to UK oil and gas greenhouse gas emissions.
In a report, the OGA says that the volume of gas flared and vented in offshore upstream oil and gas production in 2019 was equivalent to three percent of all the natural gas produced during the year. While some venting (the discharging of gases into the atmosphere) and flaring (burning gases before they are discharged) is unavoidable for safety and operational reasons, more can be done to reduce this number, it adds.
Flaring alone currently makes up a quarter of all UK offshore and gas production related CO2 emissions and represents 1 percent of total UK annual CO2 emissions in 2019. Venting produces less than 1 percent of UK offshore oil and gas CO2 emissions, but is responsible for approximately half of all offshore methane emissions, representing a similar amount of the total UK annual methane emissions (as of 2018).
“The OGA is looking to take a robust stance on flaring and venting - through its consents, field development process and project stewardship. While it is encouraging to see a fall in volumes flared and vented, we believe there are clear opportunities for industry to go further to advance cleaner production," says Hedvig Ljungerud, OGA Director of Strategy.
The OGA issues consents for flaring and venting of gas on extant licenses and is exploring tougher measures as part of this process, to eliminate unnecessary or wasteful flaring and venting. As part of the authority’s commitment to integrating net zero considerations into its work, it is aiming to closely scrutinise operator flaring and venting requests – in both existing production and in new field development plans.
The introduction of benchmarking of flaring and venting data aims to drive improved performance across industry, it adds.
“Our benchmarking has already been proven to raise performance levels in other areas, such as production and decommissioning cost efficiency, enabling operators to learn from good examples set by others and allowing us to focus our attention and interventions in the right areas,” Ljungerud explains.
While the report acknowledges inconsistencies in assessment standards and calculation methods, recognising this as a key area of work going forward, findings of the report include:
- 42 billion standard cubic feet of gas (bcf) was flared from offshore facilities in 2019
- However, the volume of gas flared last year was a 4 percent reduction from 2018, the first annual reduction since 2014
- 7 bcf of gas was vented on the UKCS in 2019 from offshore facilities. This was a 34 percent reduction from 2018
- In 2019, on the UKCS 114 standard cubic feet of gas was flared for every barrel of oil produced (scf/bbl). This measure has fallen for two consecutive years and is 12% percent down from 129 scf/bbl recorded in 2017.
The OGA adds that good practice already being shown by the industry includes some operators looking at eductors – specialist pumps – to minimise flaring, and there is evidence that many are prioritising flare/vent volumes as key performance measures in their day-to-day operations.
Callon Petroleum Company buys Primexx for $788 million
Callon Petroleum Company has enhanced its profile in the Delaware Basin after buying Primexx for $788 million.
Primexx is a private oil and gas operator in the basin with a contiguous footprint of 35,000 net acres in Reeves County and second quarter 2021 net production of approximately 18,000 barrels of oil equivalent per day. The transaction, which involves $440 million in cash and 9.19 million shares of CPE stock issued to the seller, aims to close in Q4.
With approximately 300 identified core net locations, around two-thirds of which are two-mile laterals, the acquired assets will support Callon's continued shift to larger, more capital efficient development projects in the area while increasing the oil cut of Callon's Delaware business and improving corporate cash margins. While Callon delivered production of 89 Mboe/d in Q2, it recorded a net loss of $11.7 million.
Callon President and Chief Executive Officer Joe Gatto said the transaction checks every operational and financial box on the list of compelling attributes of consolidation.
"The asset base adds substantial current oil production and a top-tier inventory to our Delaware portfolio, and fits squarely into our model of scaled, co-development of a multi-zone resource base," he said. "Our integrated, future development plans will benefit greatly from the combined Delaware scale and we expect to generate approximately 30% more adjusted free cash flow from the third quarter of 2021 through year-end 2023 under our conservative planning price assumptions."
He added the third quarter is off "to a tremendous start" with July production volumes well ahead of second quarter average and commodity price realisations are projected to benefit from the reduction in overall hedged production.
Under the transaction, Callon will:
- Capture the benefits of a larger Delaware operation
The acquisition will increase Callon's Delaware Basin position to over 110,000 net acres. Primexx's assets will immediately compete for capital within the Callon portfolio and increase Callon's capital allocation to the Delaware Basin. In addition, numerous opportunities for cost and capital efficiency gains, which Callon has proven to achieve in past transactions, create upside to current forecasted performance.
- Drive substantial FCF increases
The acquired asset base with substantial current production will immediately contribute to both near-term adjusted free cash flow1 and total cumulative adjusted free cash flow of almost $1.2 billion through 2023 at current strip prices. This forecasted free cash flow profile is the product of a reinvestment rate of less than 60% with an associated compounded annual production growth profile that remains under 5%. Importantly, the combined transactions are forecast to be accretive to adjusted free cash flow per share in 2022 and 2023 at both planning prices of $55 - $60/Bbl for oil and current NYMEX strip pricing for oil.
- Accelerate deleveraging goals
The transactions will position Callon to accelerate its debt reduction goals, reducing leverage to less than 2x net debt to adjusted EBITDA by year-end 2022 at current strip prices. This rapid deleveraging opportunity accelerates the timetable for the Company's future transition from balance sheet strengthening to exploring return of capital opportunities.
- Improve cash margins
The addition of Primexx is expected to further expand Callon's leading cash margins and increase the oil weighting of its Delaware Basin production profile. Given Callon's established operations, minimal incremental G&A will be needed to consolidate the Primexx assets into the newly combined footprint.
- Support sustainability initiatives: Primexx has invested in a robust gathering and water management infrastructure that includes 80 MBbl/d of water recycling capacity and 60 miles of water transfer lines, more than doubling Callon's current water recycling capacity. This significantly enhances Callon's ability to manage its freshwater impact in the Delaware Basin while reducing overall development and operating costs.