EnQuest PLC ENQUF, a U.K. energy firm, has disclosed its plans to begin drilling at what it believes to be the biggest oilfield discovered in the North Sea in nearly two decades. Despite warnings from scientists and the United Nations to cease production from fossil fuels due to climate concerns and a net zero crackdown on the oil and gas industry in the United Kingdom, the group was awarded a drilling license in the North Sea in a rather controversial decision.
EnQuest intends to bring two fields, located close to the Kraken oil and gas fields, onstream. These fields can potentially produce close to 500 million barrels of crude oil in the coming years. The two sites — Bressay and Bentley — are located very close to the Kraken field. The proximity serves as an advantage as it allows the sites to be connected to the same production that already serves as a floating platform for extracting oil from the Kraken field.
Bressay and Bentley Fields
EnQuest describes Bressay as one of the largest untapped oil fields within the U.K. continental shelf. The estimated oil-in-place for the site ranges between 600 million and 1 billion barrels. However, the oil extracted from Bressay is expected to be in the range of 200-300 million barrels, lower than the total reserves.
Bentley, on the other hand, is believed to be even larger, with a production capacity of more than 300 million barrels. This amount will be added to the 137 million barrels, which is already being extracted from the original Kraken field.
The two fields, along with Kraken, collectively referred to as the “Kraken cluster,” will have a combined reserve greater than either the Rosebank or Cambo fields. The Equinor Rosebank North Sea oilfield was awarded a drilling license in September 2023, after months of debates. The oil field is expected to yield 350 million barrels of oil.
Cambo, discovered in 2002, contains estimated reserves of 170 million barrels of oil. It has been in a state of uncertainty since 2021 after Shell withdrew from the project. The withdrawal of the energy giant was linked to significant backlash from environmental groups. Both Rosebank and Cambo, located west of Shetland, have garnered significant backlash from environmentalists.
Production of oil from Bressay and Bentley is expected to spark the existing political debates centered around environmental concerns. The Labour Party of the U.K. has also proposed to stop awarding new production licenses. Energy companies are facing tremendous pressure to cut back on oil and gas production and increase investment in the renewable energy sector as governments worldwide are focused on meeting their ambitious net-zero target.
Industry Warnings and Energy Security
Several industry leaders in the energy space have prompted warnings against these interventions. The world may be at risk of energy shortages in the future unless more investments are made in the exploration and production of oil and gas.
Offshore Energies U.K., the industry trade body, has stated that there is a need for continued investment in energy projects, including oil, for the country’s energy security. These investments are also necessary to support jobs and bolster the nation’s economy. However, the oil found in the new discoveries, as well as oil from Kraken, will mostly be used for exports due to the shortage of a connecting pipeline. As the fields are not linked via any pipeline, the oil must be transported by ships to refineries, where it is then made available for purchase.
EnQuest's Transition Strategy and Government Support
The U.K. government defends new oil and gas licensing, as it will secure thousands of jobs and contribute billions in tax revenues. The government also mentioned the need for a pragmatic approach toward net zero transition.
EnQuest is committed to support energy transition in the country by aiming to achieve net zero scope 1 and 2 emissions by 2040. The company plans to utilize gas extracted from the Bressay field to power operations at the Kraken field, replacing diesel fuels. This move will significantly reduce emissions from the Kraken field.
The Secretary of State for Energy Security and Net Zero has acknowledged the need for oil and gas, even after the United Kingdom reaches its net zero emissions target in 2050. This is the reason why the U.K government is backing the country's oil and gas industry with annual licensing rounds. The oil and gas industry contributes billions of dollars in tax revenues that are utilized by the government to fund public services and retain the skills essential for the green transition.
Zacks Rank and Key Picks
Currently, ENQUF holds a Zacks Rank #3 (Hold).
Some better-ranked stocks in the energy sector are Archrock Inc. AROC, SM Energy SM and Hess Midstream LP HESM. Archrock and SM Energy presently sport a Zacks Rank #1 (Strong Buy) each, while Hess Midstream carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.
SM Energy is an upstream energy firm operating in the prolific Midland Basin region and the South Texas region. For 2024, the company expects its production to increase from the prior- year reported figure, signaling a bright production outlook.
Hess Midstream LP owns, operates, develops and acquires a wide range of midstream assets, providing services to Hess and other third-party customers. The partnership has a stable fee-based revenue model secured via long-term commercial contracts. Since Hess Midstream operates through 100% fee-based contracts, it is exposed to minimal commodity price risks.
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