“I love it because it is not oil”, the head of Angus Energy said of his new gas asset in Lincolnshire.
The former financier turned managing director is banking on the Saltfleetby gas field to raise both money and confidence for the company.
Speaking in an extended interview with DrillOrDrop, the 8th Earl of Lucan, said:
“[I have] very high-level confidence about Saltfleetby as a producing and cash-generating asset.”
The deal, closed with Wingas in June 2019, marked a move for Angus away from its Weald oil roots.
The field was originally seen as suitable only for abandonment. But Lord Lucan said the company now gives it up to nine years of life:
“I believe Saltfleetby will make for the company much more money than Brockham [a site targeting Kimmeridge oil in Surrey] would ever have made for us.
“If I were to express my preference, we would look more at gas assets than oil assets in the future.”
Nine months after a board room coup brought him to Angus, he said:
“I won’t say I’m an out and out bear on oil. I’m not.
“But I would have to say that with the advent of the electric car, possibly the hydrogen fuel cell car one day … we will see diminished demand for the crude oil product.
“If I had to take a view as somebody who had been in hedge funds with commodity traders, a long-term view on oil is I don’t think we’ll see $80, $90 oil again and, if we do, it will only be very briefly, which means a lot of projects make less sense.”
Lord Lucan said the environmental concerns about oil production would also increase:
“People don’t like it, put bluntly. They like gas because they need it and they are likely to need it for ever. It is pretty much the same stuff but it is a lot, lot, cleaner. I like the fact that it is cleaner.”
Angus is now waiting for a decision by the Oil & Gas Authority on transferring the operator’s licence at Saltfleetby.
There’s been some concern about the company’s decision to use site restoration funds to re-establish the connection to the gas grid. Lord Lucan said he would be reserving revenue – possibly 15% – for restoration.
“The costs of abandoning, we’ve really been over now with as fine a toothcomb as you can.
“The level of confidence that this will flow gas comfortably for one or even three years is, in my view, 99.9%. Five or seven years is our estimate. After which time, that abandonment cost will be covered many, many, times over.”
Weald oil dream?
Angus listed on the junior AIM stock market in November 2016 with plans to explore for oil in the Kimmeridge limestones and Portland sandstones in the Weald.
In 2017, investors were predicting a soaring share price and production of hundreds of barrels of oil a day from a sidetrack well drilled into the Kimmeridge at Brockham. There was even speculation about specially-built sidings to remove the oil by train.
But the sidetrack was allegedly drilled without planning permission and, although Angus disputed this, Lord Lucan accepts the company’s reputation was damaged. In June 2019, Angus declared the well was uncommercial without fracking and put the site up for sale. Another well drilled at Lidsey on the edge of the Weald did not live up to its promise.
At Balcombe, Angus discovered unexpected water in the well and a paperwork glitch by the former MD inadvertently closed the planning permission for flow testing. Lord Lucan said:
“When we realised this had been done, it was quite heart-rending because to put an application together is a multi-month exercise involving endless environmental reports and we simply couldn’t use the old ones because you have to recheck seasonality, recheck migration, the nesting habits of particularly two types of animals. It’s a heck of a piece of work.”
So is the Weald oil dream over?
“No, I really don’t think so”, Lord Lucan said.
“I am comfortable that the oil is in place. But it does seem to want to remain in place and that’s the problem.”
The difficulty, he says, is that the Kimmeridge oil appears to vary over just a short distance. It flows at Horse Hill, he said, but it doesn’t flow a few kilometres away at Brockham or at Broadford Bridge, in West Sussex, which is closer to the supposed sweet spot.
“If we look at the whole Kimmeridge play it is really an unknown.
“It is something we said in our original prospectus that this was an unconventional play. It was not well known.
“I’m telling you, as a layman, that I don’t think any of the technical teams know very well yet.”
Asked how many wells would be needed across the Weald to be sure, he said:
“Well in the order of hundreds, which no one can afford. Which is just as well because the residents would be flinging up their arms in horror.”
At Brockham, there’s apparently been no rush of buyers. Lord Lucan said:
“Those negotiations, I would say, are going on, on a very long-term basis. I don’t expect to see anything happen very quickly. I do think, although there is only one person we are talking to, there are two potential parties in the longer run. But I don’t see anything happening in a six-month timeframe.”
The company has applied for a licence extension for production from the Portland at the Brockham BRx2Y well and submitted a field development plan:
“We don’t expect it to be a gusher but it should pay the field costs whilst we consider all the other options.”
There may also be plans for a sidetrack but he said “we would have to be very sure that the new resources would justify it”.
Lord Lucan confirmed that Angus would not be going back to the Kimmeridge at Brockham. And it has ruled out fracking the formation:
“Personally, I’m unconvinced that there aren’t greater liabilities associated with fracking than are generally understood, particularly in an environment when you can’t rely on an operation to deal with excess water, such as our own.
“Professionally, the company is of the view that (a) it is too expensive and (b) too difficult to get community support, or at least community neutrality. Which is the best I think you can hope for drilling in a populous area.”
He said the Kimmeridge sidetrack, BRx4Z, would be plugged and abandoned. The company has an estimate of the cost. But the work would not be done until Angus was ready to abandon the whole Brockham site, he said.
“Whilst there is still an opportunity elsewhere, that won’t be something we’ll do immediately.”
Water in, oil out
Commercial production from the Portland at Brockham appears to depend on water reinjection and Angus is considering applying to the Environment Agency to resume this operation, Lord Lucan said.
Reinjection at Brockham was halted when the Environment Agency granted an updated environmental permit for the site in November 2018.
Lord Lucan said:
“Injecting water would clearly allow us to increase the recoverable oil and would potentially solve problems in terms of disposing of water elsewhere.”
Asked if water reinjection was needed to get the Portland flowing at reasonable rates, he said:
“My understanding is it unquestionably increases recovery, yes.
“We’ll consider it [water reinjection] but we haven’t got any application in to do it yet.”
The disposal of produced water is also a key issue for the onshore industry.
Lord Lucan said the salinity of formation water was so high that it was “almost impossibly expensive” to treat. As a result, he said, the water was taken by tanker to an incinerator.
“Right now, the water has to be trucked several hundred miles and then burnt because there is simply nothing else that we can do with it.
“We’re at a loss that we can’t get environmental permits to inject 2,000 meters below the surface, 1.5km away from the nearest water table that anyone conceivably uses, and yet one gets this great resistance that, somehow, we’re poisoning the environment. And yet we truck it miles and miles and miles up country roads and motorways and then it gets burnt.”
“High degree of confidence” about Balcombe
On the day of the interview, Angus Energy submitted a planning application to West Sussex County Council to carry out an extended well test on the well drilled by Cuadrilla at Balcombe in 2013.
Lord Lucan said he had a “relatively high degree of confidence” but he didn’t expect to be welcomed in the village, which saw daily protests during drilling.
“I think it would be fair to say that like all people in a very beautiful bit of the world you’d rather not have any heavy industry on your doorstep – that’s the starting point. And I don’t blame people for thinking that.”
The application, now published online, is seeking permission for a test for up to three years, during which Angus will be extracting oil. So, is this just production by another name? Lord Lucan said:
“No, in fairness, it is what it says it is. You will stop production for periods of time, proper periods of time, to observe and monitor pressure. And what it tells you, at the end of that period, is whether it’s worth spending another £10 million putting in two further wells.
“In other words, whether or not the resource is available there, the pressure is there in the reservoir, to press on with it. It genuinely is a test. It is a test that more than pays for itself because you are able to produce most of the time.”
He hoped for a decision on the application by the start of 2020. If the council went in the company’s favour, he said:
“[the start of work] would be immediate. It would take two to three weeks, assuming the availability of all the equipment, we’d be going at it hammer and tongs.”
Asked about the long-term plans for Balcombe, he said:
“It absolutely depends on the resources and the pressure.”
Asked how many wells there could be at Balcombe, he said the answer is “a lot more complex than just how much oil you’ve got.”
“It’s also what kind of structures it’s trapped in for one, and the whole basis here of appraisal, which is part of what we’re doing, is that it gives rise to the data that will ultimately inform whether or not you’re very happy with taking it out on one level or you want a second or a third.”
“No more bad news”
Angus has seen its share price fall from a peak of 35p in mid-2017 to yesterday’s figure of 1.25p.
Lord Lucan said:
“We are absolutely at the bottom. I’ve been in there with a broom and what skeletons there are in the cupboard are out. If I look at the asset portfolio, I don’t anticipate any more bad news.
He said Portland production at Brockham would not be a game-changer for the share price but Saltfleetby would be.
He said the current assets implied a share price of 4p-7p.
“I can say to those people who bought at 35p and are here at 1, well you have lost a heck of a lot and I’m very, very, sorry.
“1.3p is grossly undervaluing the company.”
Climate change and “addiction to oil”
Given his preference for gas, we asked Lord Lucan whether it was appropriate to be producing oil in a climate emergency. He replied:
“That’s a very good question. It’s rather odd for an oil man but I gave up my car in London in 1991. I walk everywhere or take public transport. I have a horror of aeroplane travel. I think it is terribly wasteful. I can’t bear the way that everybody does it. I get roped into it. People even with an educated background who should know a lot better, they all are still doing it like mad. I think it’s awful.
“Whether you blame the user or the producer, that seems to be a harder question. You could argue that if Angus didn’t produce, this product wouldn’t be consumed. It’s not true.
“Ultimately oil is an addiction, isn’t it, really, at a certain level. There are great uses of plastic but oil is an addiction. Weaning people off summer holidays looks to protesters to be a lot, lot, more difficult than standing outside the gates of Balcombe and Brockham and waving a placard.”
He said he had a lot of sympathy with the environmental lobby.
“I do think they’ve got an absolutely good case. Equally, I think the oil industry has quite a good record now onshore UK in being responsible with the environment and that it is delivering a product which at least in some of its use is highly laudable and probably essential.
“But I would agree that the matter deserves continuing and on-going discussion. But, personally, I still think demand not supply is where we should be waving our placards.”