General election

Was the general election result good news or bad news for the onshore industry and Angus Energy in particular?

The first thing to say is that the industry has been facing this election with trepidation. I think everyone understands that this is because of things that were said by the Labour Party ahead of the election around the energy transition, the desire to increase taxes even further from where they were put up by the past government, the desire to remove what the Labour Party called loopholes to taxation, which are in fact critical capital allowances that allow the industry to invest and replenish our domestic production. I think trepidation is the right word and I think until we see what the new government intends to do, compared with what it might do, now that it is in power, let’s see what it intends to do.

I think there is a key point from the industry and that is we are in the very early days of the energy transition. We still rely significantly on oil and gas for our energy, for transportation, for home heating, for electricity generation, for industry, and importing oil and gas when we have domestic resources does not make any sense. It doesn’t make any sense to the Treasury. It doesn’t make any sense in terms of lost jobs. It actually increases carbon emissions to import oil and gas and I think that the whole industry recognises that if we are given a chance to produce and to develop the domestic oil and gas fields it is in the best interests of the country as we manage our way through what’s going to be a complex energy transition.

Will you get that with Labour and with GB Energy?

I think we’re hearing mixed messages, to be fair. We’ve heard some views on taxation and a desire to put a lot of investment into alternative energies. If that’s the desire to invest in alternatives, I would be the first to support that. But it can’t come at the cost of the oil and gas industry.

I’ve also heard that there is strong union support, particularly in Scotland, for managing the oil industry with caution because it is still a significant employer, still a significant contributor to the Treasury, and therefore, I think there are counterbalances that hopefully will mean that the new government will take the right stance.

So let’s say I’m cautiously optimistic. Maybe not as negative as some of my colleagues in trying to find the right outcome. We all recognise that we have to continue to lower the impact of oil and gas because of the climate impacts of it.

But at the same time, it has to be done in the right way. And what doesn’t work right now is the high levels of taxation that were committed by the last government as a knee-jerk reaction to what happened in Ukraine. And rather than seeing those come down as commodity prices have come down again, we’re actually seeing people trying to push them up.

Supreme Court ruling on downstream carbon emissions

Were you surprised by the Supreme Court judgement in the Sarah Finch case?

Not particularly no, given the circumstances now and the pressure that is on. This ruling really affects planning authorities and, obviously, we are the recipient of their decisions. So we are an observer in this. Is it illogical that a council shouldn’t consider scope 3 emissions from a new project? Obviously, there were some judges who felt it was a reasonable request. Should you consider scope 2 and 3 emissions when you add an extension on your house. I think this is the issue that people are struggling with now, which is where does this stop and where is it going to stop? Because this applies to everything we do. We use energy for just about everything we do as human beings and at the moment just about all of that energy, or a very large percentage of it, comes from oil and gas so any decisions that are made, to put up new houses, build new roads, new airports, no matter what, they have a climate impact. We’ve seen this more and more in the last few years. So what does this actually mean? The reaction I’ve heard since this case was that people are confused about how this is this is going to be interpreted and what does it really mean.

Are you are saying that, at this stage, it is difficult to know if it will affect your company and the onshore industry generally?

Yes, I think right now we are waiting to see. We have a planning application which has just been submitted to drill additional wells at the Saltfleetby gas field and that approval process could be affected by this. At this stage, we remain optimistic that we will get the right outcome and if this involves more work to be clear about the impact of what we’re trying to do then so be it. We can live with that.

Angus Energy future plans

Angus Energy said recently that it has new areas of interest. What are they?

In terms of new ventures, we can’t be too specific for commercial sensitivity. We can’t talk about specific things that we are currently looking at. We have formed a world-class team that is now reviewing onshore assets in UK, North America and North Africa.

The first priority is to look at our current portfolio, our organic projects, and say let’s make the most of the things that we can do with our current portfolio. So, we’re investing in Saltfleetby, to get the production up and sustain it, maximise the reserves, do something about our oilfields, which until recently were mothballed and not producing anything. That’s our immediate priority – to generate as much revenue and cash flow as possible from our existing assets. We also plan to create value through monetising our storage capacity. We are also examining the reservoir at Saltfleetby to identify additional potential reserves.

Beyond that, we recognise that the company has the potential to grow and we can take on more opportunities. Interestingly as a UK onshore producer, the first place people would expect us to look at is onshore UK and there’s quite a lot of companies that are, if not distressed, then they are struggling. There’s a logic to potentially combining or adding assets in onshore UK. But this comes back to the attitude of the new government to the environment in which we would be investing in. I think we need to have clearer rules and a clearer understanding of government direction before we commit to that.

Saltfleetby

You’ve talked about a well performance management strategy to address the issue of liquids at Saltfleetby. What is the problem and how do you fix it?

A gas condensate reservoir is one in which everything is in the gaseous state but as the fluids come out of the well, the condensate converts into a liquid under temperature and pressure and therefore you end up with two phases at the surface: natural gas and condensate.

We don’t have a lot of condensate in our reservoirs. The ratio is about 17 barrels of condensate for every million cubic feet of natural gas, which is relatively lean but it means that in the wells as the liquid drops out the wells get plugged with liquid. It’s to do with the flowing pressure and the reservoir pressure. We’re at a stage now where the field is quite mature. Our predecessors produced nearly 65% of the gas that’s possible to produce out of it. We’re trying to produce the tail of the reserves and the pressures have dropped. And we’re having to deal with these liquids affecting the production of the wells. This isn’t something that surprises us. This is something that happens in fields of this age. And it’s one of the reasons why we are in the process of installing a new compressor at the field, what we call the booster compressor, which is a significant capital project for us. It’s a new unit being constructed in the US and delivered to the site in November of this year. And once we put that on, that will help to deal with this problem because we’ll be able to pull harder on the wells as a result of this additional compressor, which means that this liquid loading issue we had will be diminished.

Will that increase the volume of gas that can be produced?

Yes it will. That is our forecast. We’re looking to raise the production from Saltfleetby in a number of ways but the one that we’ve always signalled would be the first would be the installation of this booster compressor.

How much did the booster compressor cost?

The booster compressor is quite a big investment. The compressor itself is about £1.7m but you have to add on control systems on it, it has to be put on a plinth, it needs to have air coolers to keep it working.  We’re probably looking at a £3m project, which for us is a big investment.

What is the value of condensate?

Condensate is valuable. There are limited markets for it in the UK. Our condensate is tankered to a refinery in Harwich. We get quite a significant discount to the Brent [crude oil] price for our condensate but it does generate important revenue for us. We are actively looking at ways to increase the netback from condensate.

It has to be tankered. We don’t have any pipeline. Our gas goes straight into the national grid, just a few miles from the field at grid specification, which is very carefully controlled. It is very dry gas, which essentially will come out in someone’s cooker at home or in their boiler. So we can’t have liquids in there. That’s why we built the new facilities at the Saltfleetby site after Theddlethorpe terminal shut down. We basically have to process the gas ourselves to remove the condensate and prepare it for injection into the national grid.

Angus estimated revenue for Q2 was £4.9m. Is that what you were expecting, or is it a bit more or a bit less?

That’s more or less what we were expecting. We’ve actually seen some resilience in the gas price in the last few months, which has helped to offset slightly lower production than we’d hoped because of this liquids issue. So the two have more or less balanced themselves out and so our revenue results are very close to our expectations.

When you think back in February time when we had a gas price in the UK of about 60p a therm at the time and recently we’ve seen it in the 70s and even the 80s. There’s a number of reasons for that, linked with the very complex global gas business now but we’re grateful that gas prices have held up in the UK for the last quarter.

Last time I spoke to your predecessor, five years ago, the company’s revenue was looking very different because Saltfleetby hadn’t come online. What does the revenue from Saltfleetby allow Angus Energy to do that it couldn’t do five years ago?

First of all, we were in a situation with the Saltfleetby development where there were a number of project delays and overruns that ended up putting us in a position with quite a lot of debt last year. It was short-term debt that was expensive to service so our priority for the second half of last year was to restructure that debt, which we were successful in doing in February this year and that gave us the ability to restructure our debt into a long-term, five-year, facility at lower interest rates. And it also gave us some additional cash which we could use, for example, to reestablish production at our Brockham oilfield and to fund this booster compressor and deal with some legacy creditors. It was a re-setting of Angus at that time and we were very lucky having Trafigura coming in as our partner on that.

We still have some hedging commitments that don’t roll off until June of 2025. So we’ve got another 12 months of dealing with those, where for quite a significant part of our production we receive a price that is significantly below the current price. That’s just a legacy position that we have to deal with. The good news is that 12 months from now that will be gone and we’re still hedging a percentage of our production but we’re doing it at prices that are much more aligned to current market prices so they give us price protection, which is the intention. Unfortunately, we hedged in 2021 in a very different world. We just have to live with that.

The real answer to your question with respect to Saltfleetby is that our cash flow will be lower over the next 12 months because we have debt to service and this hedge situation to deal with. We’re continuing to invest in the booster compressor up until the end of the year but one of the things we said when we refinanced was that we would look at the potential to drill some new wells at Saltfleetby. We are now examining other mechanisms to pay for it in 2025 and beyond. We’re also looking to see whether there are alternative investments we can make, such as working over the existing wells, which would be much cheaper to do but would provide us with a production boost.

What’s the likely timetable for the Saltfleetby planning application timeline?

It’s hard for us to opine on things that are done by county councils. I think our expectation is around six months. We’ve started this process very early to give ourselves flexibility. We’ve put in for multiple well locations, not because we intend to drill every single location but we want flexibility to locate the wells in the most optimum position. So, I think our expectation is six months but these things are very hard to predict.

When would work start?

I think things are quite fluid at the moment because we’re looking at the potential in the short-term to do some workovers on existing wells, which would increase production. And that might mean that we don’t need drill as many new wells or potentially any new wells. And the other thing that we’re doing – we did some subsurface work in 2023 to basically remap the reservoir underground and that has come up with some interesting results, which we are now validating and feeding into a new reservoir model. That’s a simulator, which allows us to put simulated wells in different places and understand the impact and optimise what we do. We need to finish that piece of work before we can make a clear decision on what we’re going to do next. I suspect we will find some good well locations we would like to drill but I suspect that won’t happen until the back end of 2025 or into 2026.

What impact will that have on production volume at Saltfleetby?

We have a constraint in our production facilities, with the new booster compressor and the two compressors that we currently have and the way that the plant is constructed, we are probably constrained to about 11 or 12 million cubic feet per day. Obviously, our goal is to be producing by having the wells that can produce that. That’s what we would be looking to trying to achieve. We know that the reservoir is well connected underground. We can see that the wells talk to one another from a pressure perspective but the gas is coming out of three wells quite slowly. If we had four or five or six wells, we’d get the gas out faster and have higher production rates. So that’s what we’re looking at.

What are your gas storage plans at Saltfleetby

There are three ways to think about gas storage, three different justifications.

The first one is strategic storage for national security. So this is like the US big oil supply that they have or Germany, which I think carries at least 90 days of gas storage so that they could get through a cold winter. This country has virtually none of that: one field in the North Sea that has been partially developed to handle that.

The second one is what’s called seasonal storage. So traditionally gas prices and demand went down in the summer and up in the winter. This happened for years but it doesn’t happen so markedly anymore so the rationale for that is not as big as it used to be and in fact previous operators of Saltfleetby before we took it on were looking to do just that: play this arbitrage between the summer and winter gas price but it didn’t come to anything.

The third justification for gas storage is basically to have some flexibility to play adjustments in the market price. So this is where a partner, like a trader, comes in. If you can buy a cargo of LNG cheap and put it somewhere and then sell it when the gas price is a bit higher then you’ve got a business.

Trafigura is interested in looking at this with us. We’re not big enough to be a strategic storage site for the UK. We don’t believe in a summer/winter price differential anymore. It doesn’t seem to work that way with LNG crossing the oceans in tankers. But there could be a role for this market-driven storage and we need to finish all of our reservoir models and look at injectivity and how fast we could put gas into the ground and take it out again to see whether this scheme is suitable. It potentially is. Saltfleetby is the only significant gas site onshore in the UK so it is definitely worth looking at.

We should have a lot more information on this soon.

I believe we should take a serious look at carbon capture at this site. This government has both committed to net zero emissions and at the same time acknowledged the role of gas in the foreseeable future. Onshore sites will have to be an essential part of the new strategy.

How would you describe Angus Energy’s decision to buy Saltfleetby, which was criticised by some at the time?

It was an excellent acquisition. It needed a certain amount of optimism about the gas price, that it wasn’t going to stay at 30/40p a therm where it had been for quite a long time. Obviously, when the project was sanctioned in 2021, nobody knew what was going to happen in February 2022 when Russia invaded Ukraine.

As things stand, if the field had been developed on time and on budget then Angus today would be a hero. It would have no debt and probably a lot of cash in the bank because it would have been very successful.

But sadly that bubble in the gas price, that largely coincided with the period when the field was still being developed and even worse where the financial hedges came on and had to be honoured even though there was no production.

So, there was a bit of a lost opportunity there, which is history now. It’s no good worrying about it. But I would say looking forwards that we still have about 25 billion cubic feet of gas in that reservoir that we believe is recoverable. If you multiply that by the gas price, it’s an extremely valuable asset.

We’ve had some legacy financial issues to deal with but coming out of that the new booster compressor, the wells worked over, finding ways to drill a new well to get the production up to the sort of levels I talked about earlier then this will be a very strong cash generator for the company and it is a very good core asset for us to do other things with.

What about oil at Saltfleetby?

We sit just east of an oil field at Keddington, which is in the same reservoir. The fields of the East Midlands are oil fields. There’s a little bit of associated gas but we’re the outlier really. We’re the only significant gas field. We think we know that there isn’t any oil at Saltfleetby in our reservoir. However, the presence of an oil field next door and a rather intriguing exploration well was drilled just north of the field with somewhat ambiguous results but which could have oil in it have meant that somewhere down our list of priorities, once we’ve got Saltfleetby worked out, we will be looking to see if there is anything else around there.

Brockham

What is the balance of oil and water at Brockham?

The water cut is about 60%. 40% of what we’re producing is crude oil. We separate the water and the crude oil at the site. The water gets reinjected back into the reservoir as a pressure support and the crude gets tankered off to Immingham for processing.

We expected these production levels. What we didn’t think we could do was produce for 24 hours a day at the start. We thought we might have to make some process adjustments but actually we’ve been able to move to 24-hour production fairly instantaneously. We’ve hired an additional operator. We will be putting in some additional upgrades to our equipment to make things easier but we just want to have a trial period up to the end of July to see how we’re doing.

So what are you talking about in terms of barrels a day of oil?

Well 40% of 120 is close to 50 barrels a day. Somewhere between 40 and 50 barrels a day of crude a day.

Brockham is not a large field. Like Saltfleetby, it’s been produced for many years so it’s a mature field. This is not a company-maker. But we didn’t invest in this well for that reason. We have a lot of fixed costs at Brockham: renting the site, maintaining the site, paying all our lease fees to the government, etc etc and at the very least we wanted to make sure that the field could cover its costs.

What can you do to increase the volume of production at Brockham? Do you have plans for more drilling?

We’re not going to be doing any drilling at the moment.

And the reservoir is the Portland?

This is the Portland, a Jurassic reservoir.

Any plans to look again at the Kimmeridge?

Not at Brockham. The 4X, the well I’ve just been talking about, was drilled to the Kimmeridge. It didn’t flow and our interpretation of it is that it doesn’t really have a reservoir. I think that the well was drilled at a time of heightened excitement about the Kimmeridge after this well at Horse Hill, the famous Gatwick Gusher. It’s different if we talk about our Balcombe field. That’s in the Kimmeridge  [see section below] but no plans to look again at the Kimmeridge at Brockham.

There were plans to sell Brockham – if you can get the oil to flow do you have any current plans to sell the field?

We haven’t made any plans yet because if we were going to sell it, it would be good to sell it in good condition producing oil. So our priority right now is to stabilise the field with production and then look at the strategic options we’ve got.

You don’t have planning permission to import water to inject at Brockham. Are there plans to seek this?

We were allowed to inject water at Brockham but we need to complete a process to get the approvals to transport water from other sites to help us with our pressure support.

There’s a difference between water disposal and pressure support, or what’s known as voidage replacement, in a producing field and we’ve argued successfully that to maximise the recovery from Brockham we need to replace the fluids we’re taking out. And therefore we would like the ability to bring additional tanker loads of water in to make sure that we’re doing that. We’re in the process of putting that together. We’ve prioritised our planning permission documents for Saltfleetby and now we are following up with the Brockham planning application. And that obviously would allow us to restart production at our Lidsey field, which has no water disposal and is totally dependent on being able to inject water at Brockham.

Lidsey

Lidsey has been mothballed with no production since 2020 and before then it was quite low at 15 barrels a day. Is it time to abandon Lidsey?

I don’t think it’s time to make that final decision yet. Our thinking process was let’s start with Brockham because that’s the easiest field to bring back on production and we have the ability to inject water. Once we’ve got Brockham stabilised we’ll look at the potential to bring Lidsey back on stream.

Even though production was low, 15-20 barrels a day would still be economic. And we have licences from the government to maximise production from these fields so we will do what we can to achieve that. But we can’t make a decision on that until we’re able to consider the movement of the fluids, particularly the water, to Brockham.

Balcombe

The appeal court hearing brought by Frack Free Balcombe Residents’ Association is in January 2025. How do you feel about the very long process to get the Balcombe well test approved?

It has been a very long, drawn out and very frustrating process. We’re not trying to develop a new oil field. What we were granted planning permission for was to test a well that we’d spent a lot of money drilling. The well will have to be flowed anyway to clean it up, even if it’s just going to be abandoned.

So the only way to deal with this is to allow the well to be flowed and then we either make a commercial decision to abandon it and put it back to what it was like before we drilled, or we have some encouragement that says we have an asset here that could be developed and which could generate production, taxes, jobs and all the things that we do this for.

We have residents that feel very strongly that this shouldn’t be allowed to go ahead, which they’re obviously entitled to that opinion. I think this was borne out of the fear of fracking that was very much prevalent some years ago in this country and which ultimately led the government to ban virtually all types of hydraulic fracturing. We have always maintained that it is not our intention to seek any approvals to do hydraulic fracturing in this well. We just want to produce back the fluids that are in this well and see if we’ve got something that is commercial.

The original court case was against the government, the council and Angus. The appeal was rejected but was then partially upheld on appeal and that’s why we’re going back to the process in January.

What’s significant this time is that Angus stood out of the last defence but this time we’ve decided to join the government so we are a co-respondent in this case and we’re taking legal advice and we’ve put together our skeleton argument in support of the government to see if we can’t get this finally decided in our favour so that we can move ahead.  

But for the time being, everything is on hold?

It is. We have options but we’ve decided that at this stage, given we’re five, six months away, we will just wait and see the outcome.

Do you have any contact with FFBRA or people in Balcombe?

We haven’t done recently, largely because we’re a small team and we’ve been very busy. I would like to reach out to them and try have some engagement. I think we’re going through a very interesting transition in the energy transition. I think the initial reaction was way over the top in treating energy companies as the bad boys and it has caused a lot of people and governments to make some very strange decisions without really thinking through the consequences. I think, just like the ESG movement has a life of its own and has lost sight of what it was set up to create, I’d like to think we are now moving into a more thoughtful period, where people understand that oil and gas and unfortunately coal as well, probably, are with us for decades to come, not just in this country but in the whole world. Obviously, we can’t isolate ourselves in terms of climate change from what’s happening in the rest of the world and therefore we need a much more nuanced debate about how do we make this transition happen as fast as we possibly can but not completely undermine everything that our current economy and society is built on.

Campaigners would argue that you shouldn’t be looking for new oil and gas

There is that argument and even my old boss at BP, John Browne, has come out and said that maybe the government shouldn’t offer new licences in the North Sea, which would have a 30, 35 year life. And I think that’s an interesting point to debate.

I think in terms of production and opportunities to get as much out of the ground now or in the short term to stop us importing, I find it much harder to find arguments against that because that seems to me to be efficient and logical.

We still have an electricity system that is very dependent on hydrocarbons. We have home heating that is very largely dependent on hydrocarbons. We don’t have that many electric cars on the road yet and a lot of those that are there the electricity is being generated by gas. So we’ve got a long way to go.

I think the knee-jerk reaction that we have to stop all oil and gas, if we want to go back to living like cavemen, then let’s do it. But I don’t think our society’s ready for that and nor do I think it’s appropriate.

Balcombe is a special case because it’s in an Area of Outstanding Natural Beauty. Isn’t this the wrong place for an oil field?

It’s an interesting point. If we were starting from scratch today, we would say ‘shall we go and explore for oil in an area of outstanding natural beauty? Probably too difficult’. But it is what it is. I believe that the site is very well hidden. You wouldn’t know it’s there unless you were taken there. I believe it could be developed responsibly without putting at risk the water courses and everything that’s in that AONB. But obviously there are people who don’t believe that. Let’s see what’s decided in the appeal.

If the well test were successful, are there plans for any kind of stimulation of the Balcombe well?

Not in terms of hydraulic stimulation, no. We have not applied in our planning permission to do that. And if we were to develop the field, I think it is extremely unlikely that we would be looking to do that. I can’t say impossible because I don’t know what the test might tell us about the best way to encourage production from the wells.

I think one of the problems, again it’s a complex technical issue that a lot of people don’t understand, there’s a difference between how traditionally wells used to be fracked and the reason why they used to be fracked – which was to overcome what’s called formation damage that comes from drilling the wells – and these are very minor stimulations, where you just pump a little water and sand into the well, just a few tonnes, just to clean up the near wellbore space so that you have a better chance to produce. That’s what the industry has been doing for decades and decades and no-one ever made a fuss about it.

Unfortunately when we started developing these unconventional reservoirs or shales, the technology there can involve enormous fracks of huge intensity, with tens of thousands of pounds of sand and enormous amounts of water and big, long horizontal wells that in the US routinely go for two miles.

Well, we’re not talking about that at all. That never got off the ground in the UK. I don’t think it ever will. If we wanted to clean up a well and do a very small job on it, that is something that we would have to apply for permission for. It’s not something we have currently applied for.

The Weald

There’s not much oil that comes out of the Weald. Is the Weald worth the trouble?

Does it have potential to be important in the future? Probably not. I would agree with you. The fields there are small and complicated. Its time has passed and as we’ve seen, mainly at Balcombe, but also elsewhere, there’s not much public support from the community. And we’ll find out if there’s any government support because might be moves by the new government to make it harder and harder to do anything onshore or offshore. We just don’t know.

What I would say, and this is really important, the energy transition doesn’t just involve building a lot of windmills and solar farms and everyone buying electric cars and cooking on those electric things, that I can’t cook on.

It also involves cleaning up more than 100 years of industrial activity and if you look at all these producing fields in the Weald and in the east midlands, it’s a bit like the North Sea. You know, the big companies are investing billions of pounds now in taking out the platforms and plugging the wells and making it look like it did before we ever went there.

We have to do the same onshore. It’s not on the same scale as the North Sea was but the industry has hundreds and hundreds of wells to abandon safely, so that they don’t pollute future water courses. They have sites to demolish and return to open fields and someone has to pay for that. And the government won’t pay for it and nobody else is going to pay for it. So the industry has to generate some wealth that can be used to reward its shareholders but also can be used responsibly to end the oil era in onshore UK and I think that’s a very important role that we are playing in the energy transition that maybe people don’t understand when they look at our business model that this is a really important part of what we’re doing.

Angus Energy

You’ve worked for BP and some of the big companies around the world. Why Angus? What attracted you to Angus Energy?

It’s a really interesting question that I’ve been asked a few times. It’s a different challenge and it’s a company where I can use my many years of technical and commercial and managerial experience but I’m actually operating a very different level. It’s a company that had some really big challenges, as we’ve been discussing in this interview, and I would like to see those challenges overcome. I’d like to see the company be successful and our long-suffering shareholders be rewarded. And I’m very committed to that. So rather than being a functionary in a big company, I’m now in a company where I can maybe make more difference. We may not be successful but we’re intent on trying to make it successful.

When I spoke to George Lucan five years ago, the share price was 1.375p and he said that was absolutely the bottom. It is now 0.25p. Is that as low as it can go?

Well, it’s like predicting the oil price. How do you predict the share price? I believe we’re significantly undervalued. We’ve had to fight to get through some very difficult situations in the last 12-18 months. We have a very strong asset that has very strong cash generating potential. I’ve got a very good team that I know we can use to grow the company and develop it.