On 23 June EnQuest (ENQ) achieved first oil from the Kraken field off Shetland more than 30 years after crude was first discovered back in 1985. Its shares are up 9.3% at 32.25p.
The story of how this project has developed to become a £4bn project and one of largest fields to come on stream in the North Sea in recent years helps shine a light on the way the sector operates.
NOT COMMERCIAL
The initial find was made by US firm Occidental Petroleum but was rejected as being uneconomic at the time as the oil was too ‘heavy’. Heavy oil requires special producing techniques to overcome its viscosity.
More than 20 years after Occidental uncovered hydrocarbons at Kraken, small cap explorer Nautical Petroleum was ready to have another crack. Advancements in technology and a higher oil price leading the company to the conclusion the discovery could now be viable.
On 16 November 2007, and after bringing in a larger partner (private company Canamens) to help fund operations, the company announced a very successful result from appraisal drilling.
PLAN IN PLACE
Nearly five years later, and after further drilling, the company was closing on the submission of a field development plan (FDP) for Kraken with a plan for first oil in 2015 when it was bought by larger peer Cairn Energy (CNE) for £414m. The deal completed in August 2012.
Earlier that year the current operator of Kraken EnQuest acquired a 20% interest in Kraken from Canamens, eventually building a 70.5% stake, with Cairn owning the remainder. The FDP was submitted in the first half of 2013 and the field was approved the same year.
But it has not been smooth sailing in the interim, with EnQuest bumping up against debt covenants after the collapse in oil prices. In September 2016, a plan to sell a portion of Kraken to Israel's Delek Oil to support the funding of its development fell apart.
PRODUCTION TO RAMP UP
In addition, the Malaysian supplier of the floating production, storage and offloading (FPSO) unit being used in the development of the field had to pay EnQuest $85m to compensate for delays the delivery of the vessel.
But with the field finally on stream, production from Kraken will now be cranked up and is expected to reach a peak level of 50,000 barrels of oil per day, helping to pay down debt EnQuest built up during its development.
