North Sea Oil Producers Brace for Forties Pipeline Shutdown

(Bloomberg) -- North Sea oil producers braced for the impact of the closure of the Forties Pipeline System, a key conduit for crude that was shut after the discovery of a hairline crack.

The unplanned shutdown prompted Serica Energy Plc to cut its output guidance for the year, sending its shares tumbling by as much as 10 percent in London trading on Tuesday. Explorers EnQuest Plc and Premier Oil Plc also initially declined, before rebounding.

The U.K. link handles supplies from over 80 fields, and the shutdown forced Apache Corp. to suspend operations at its nearby Forties asset. Pipeline operator Ineos Group Ltd. said it will know in the "next few days" whether the system will be closed for two or three weeks, after declaring a "force majeure situation."

“A shutdown of the Forties Pipeline System, even temporarily, will have wide-reaching implications for the U.K. oil and gas industry,” Fiona Legate, senior analyst for North Sea upstream at consultant Wood Mackenzie Ltd., said by email. Many small producers with output of less than 10,000 barrels a day depend on it, she said.

The shutdown is set to reduce EnQuest’s output by about 4,000 barrels a day for the duration of the halt, said people familiar with the company’s operations who asked not to be named because the information isn’t public. EnQuest may use the outage to do required maintenance, reducing the time needed for scheduled works in the future, one person said.

Output Curbed

The pipeline halt will impact EnQuest’s Greater Kittiwake and Scolty areas , which account for “just over” 10 percent of the company’s average annual production, according to a note from Stephane Foucaud, an analyst at GMP FirstEnergy. A shutdown for a month would reduce EnQuest’s cash flow by an estimated $7 million, he said.

The impact on Premier Oil may be about 10,000 barrels of oil equivalent a day, or 13 percent of output, according to Foucaud, who estimates a cash flow hit of as much as $12 million a month.

Enquest and Premier Oil declined to comment.

Serica cut its 2017 output estimate to about 2,000 barrels of oil equivalent a day because Forties provides the export route for a form of light oil called condensate from the Erskine field. That’s down from a previous full-year guidance of 2,200 to 2,400 barrels a day. The company recently acquired BP Plc fields that also feed into the pipeline, but the deal won’t be completed until the middle of next year.

Partial Offset

Serica was down 3.6 percent to 73 pence as of 11:08 a.m. in London. EnQuest climbed 0.9 percent, while Premier rose 0.7 percent.

The impact of the shutdown on EnQuest and Premier Oil will “likely be partially offset” by a spike in oil and gas prices, said David Round an analyst at BMO Capital Markets. Brent crude jumped above $65 a barrel for the first time since 2015 following the pipeline halt.

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