Too many opinions, not enough facts. That’s how Chrysaor chief executive Phil Kirk views the heated debate about the oil and gas sector’s role in the energy transition.
Mr Kirk accepts people will always have a range of views and says “society is all the more fun because of that”.
But he is frustrated that a more informed discussion is not taking place. It should be one that recognises the contribution made by the UK oil and gas industry, in terms of tax revenues, employment and energy security.
He thinks the sector itself could do more to explain what oil and gas companies do and how their products are used.
However, Mr Kirk also wants to see governments and politicians “step up to the mark” and believes the introduction of measures like carbon pricing and commercial frameworks to encourage emissions-busting technology are needed.
“Governments should look carefully at what hydrocarbons we still need – and we do still need them in any scenario,” said Mr Kirk, a qualified chartered accountant.
“I would love it if the UK oil industry was supplying the UK’s necessary hydrocarbons at net zero. That would be fantastic for jobs and security of supply.
“One could import hydrocarbons and not worry about the emissions that come from producing those, but that would be a little bit disingenuous.
“When you look at the employment provided by this industry, that’s not the right thing to do.
“That’s why companies like us need to step up to the plate and deliver on the energy transition.
“But governments need to look at the full picture and not just play the emissions game.”
Mr Kirk cites the Committee on Climate Change as an example of an organisation that deals in facts in its insightful, balanced reports.
He feels the oil industry needs to go down the same path when it comes to addressing activists’ concerns.
“Parts of society want to change overnight but without using magic it can’t happen,” Mr Kirk said. “But we do not need to be combative. It’s about facts over opinions.”
Private-equity-backed Chrysaor will use the summer shutdown season to get after some “pretty material reductions” from its emissions in the North Sea.
By replacing machines and engines and examining flaring, the firm will attempt to reduce its footprint by 10-15% in 2020, and by 30-35% within five years.
To go above 50% would require “more dramatic engineering”, which is difficult to achieve on installations in a harsh, offshore environment.
Chrysaor is also looking at using renewable energy to supply electricity offshore.
These things are all possible and achievable, but support from government is needed to help remove some legislative barriers.
Mr Kirk said green energy tariffs presented an “economic challenge” to powering platforms from shore with renewables.
However, he is encouraged by “positive noises” coming from regulators and the new UK
Government regarding their energy transition plans.
Mr Kirk is also excited about Chrysaor’s involvement in the Acorn carbon capture, usage and storage scheme at St Fergus gas plant near Peterhead.
The project, also supported by Shell and Total, is currently in the early Feed stage.
Those behind Acorn hope the initiative will be up and running in 2023-24, capturing 400,000 tonnes of carbon dioxide per year initially, with potential to increase considerably.
The engineering aspect is “completely feasible”, but the “hard work” is in the legislative and commercial framework, Mr Kirk said.
If such obstacles can be negotiated, and Acorn comes to pass, Chrysaor’s journey to net zero emissions from its operations will be shortened.
The company, backed by Harbour Energy, has grown rapidly in stature over the last three years and may soon be showing up on the radars of climate change protesters before long.
In September Chrysaor completed the £2 billion acquisition of ConocoPhillips’ UK oil and gas business, increasing its production by about 70,000 barrels per day to almost 200,000.
Prior to the Conoco deal, Chrysaor’s operations created employment for around 800 people.
The organisation now keeps about 2,400 people in work, a figure that comprises 1,200 full-time staff, 600 contractors and similar numbers of service contractors.
“The Christmas party was a big one,” said Mr Kirk, who has led Chrysaor since founding the firm in 2007.
In February 2020 those joining from Conoco will switch from a rota of two weeks on, two weeks off (2:2) – and other variations – to Chrysaor’s 2:2, 2:4 pattern, Mr Kirk confirmed.
He said there was much more to Chrysaor’s growth story than just acquisitions.
When Chrysaor bought a package of stakes in more than 10 UK North Sea fields from Shell in 2017, it inherited more than 300 million barrels worth of reserves.
The figure linked to the Shell assets is largely still intact, with reserves being replaced through “hard work and the drill bit”, Mr Kirk said.
The company has an annual capex budget of $900 million, and a $200m per year spend on decommissioning in the southern North Sea, where it took out nine platforms in 2019 and has “only” 29 more to go. Almost 2,000 kilometres of pipeline has been flushed and cleaned.
In the Armada area, Chrysaor recently “brought on” a new well on the Hawkins field and was about to complete operations on the Seymour Horst well, expected to come online in the new year.
Shell had planned to cease production at Armada in 2018, but Chrysaor’s labours should keep the platform operating through to 2025 and beyond.
An appraisal well was drilled on Mabel last year and hydrocarbons were encountered.
That target will require “a bit more thought and work”, according to Mr Kirk.
That’s enough, for now, at Armada for Chrysaor, which will move a rig on to drill an extension of the Everest field, another Shell legacy asset.
Chrysaor sees “huge potential” in the J Area, which was part of the Conoco deal.
Alongside partner Eni, Chrysaor is on track to make a final investment decision on the Talbot project early in the second quarter of 2020 and perhaps earlier.
Mr Kirk said the supply chain contracts were “mostly sorted” for that scheme, which Chrysaor inherited from Conoco and was happy to keep going.
“If it isn’t broken, don’t fix it,” said Mr Kirk, who worked for Hess, before leaving the firm in 2002 to set up CH4 Energy with two other ex-Hess colleagues.
The Dunnottar exploration well in the J Area, again alongside Eni, could lead to a “big appraisal programme” if it comes off.
Another “potentially very interesting” well will be drilled at the Callanish field in the Britannia area.
Last month, Chrysaor spudded the Solar exploration well in the Apache-operated Beryl area, about 180 miles north-east of Aberdeen.
The well is being funded by Chrysaor, which struck a deal last year to buy 39.5% non-operated stakes in four licences from Apache, and raise its existing interest in a fifth licence to 39.5%, from 22.78% previously.
Mr Kirk would not reveal the pre-drill estimates for Solar, but did say there could be another couple of exploration targets in those licences which could be drilled.
Chrysaor also holds acreage west of Shetland, but no firm wells are in the budget for 2020, though the company will look to see if its licences contain anything attractive enough to merit drilling from 2021 onwards.
The question of “the exit” is always prominent at firms backed by private equity and Mr Kirk said the prospect of an initial public offering was not far from his mind.
“We’ve always said we would be ready,” he said. “But we’ve got a complicated integration pulling two companies together.
“There is no rush, at all, to list. We’ve got permanent capital from our shareholders. We can take our time and look at projects.
“We would be ready for 2021, but do not need to do it. Our focus is on making money safely.”
Mr Kirk added the company still had an appetite for acquisitions: “Our shareholders are supportive. We like what we’ve done so far. The more we see of Conoco, the more we like it.
“We have enough people and resources to look at other opportunities, but they have to be the right opportunities.
“I would not be surprised if we are active in M&A in the UK, for the right deal. It may be without another 1,000 people coming on board, much as I love them all. It has to fit and make sense.”
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