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UK new tax policy triggers North Sea Kraken heavy oil development

EnQuest to award Kraken FPSO to Bumi Armada

2B1st_Project_Smart_Explorer_Sales_Pursuit_ToolThe Scottish joint venture made of Aberdeen-based EnQuest and First Oil plc ( First Oil) companies together with the Edinburgh-registered Cairn Energy plc (Cairn) have issued a letter of interim agreement (LOIA) to the Malaysian engineering company Bumi Armada (Bumi) for the design and construction of the Kraken floating production, storage and offloading (FPSO) vessel to be moored in the East Shetland Basin of the North Sea.

As the largest independent company operating in the North Sea, EnQuest focuses on maturing fields and underdeveloped reserves.

In that respect EnQuest took Kraken operatorship in 2012 over Nautical Petroleum (Nautical).

EnQuest_Kraken_FPSO_Bumi-Armada_MapBringing new partners to substitute Nautical to withdraw, EnQuest shares currently the working interests in Kraken such as:

 EnQuest 60% is the operator

 – Cairn 25%

 – First Oil 15%

Located approximately 125 kilometers east of the Shetland Islands and 420 kilometers west of Stavanger in Norway, Kraken is a complex offshore field of heavy crude oil.

Discovered in 1985 by 1,334 meters total depth, Kraken is estimated to hold 137 million barrels

EnQuest and its partners have planned to invest $6.5 billion in capital and operation expenditure over the next 25 years to develop Kraken in expecting to be paid back with $15 billion revenues over the same period.

Because of the complexity of the field and the constraints to explore and produce ultra heavy crude offshore, EnQuest  signed with UK Government a tax break until 2018 as its contribution to revitalize North Sea oil and gas activities.

Considering that about 80% of the investment should be spent in UK, the indirect taxes generated by the projects should compensate largely for the UK Government the current tax break.

Anyway the tax break discussions have caused about one year delay to the Kraken FPSO project expected to start in early 2013.

Kraken FPSO to pave way to Bumi into UK North Sea

The peak of production is now expected in 2017 with 50,000 barrels per day (b/d) of crude oil.

In this perspective, EnQuest is planning its Kraken FPSO to have a:

 – Production capacity of 70,000 b/d

 – Storage capacity of 600,000 barrels.

But considering the difficulties to extract ultra heavy crude oil, the production will be heavily assisted by water injection to maintain the maximum pressure in the reservoir.

EnQuest_Kraken_FPSO_Bumi-ArmadaIn this purpose, the Kraken FPSO should be able to inject 240,000 b/d of water.

In addition the Kraken FPSO will have to generate enough power to supply series of 25 large electric submersible pumps (ESP) installed on the seabed.

With this functional design, the Kraken FPSO is expected to require $1.4 billion capital expenditure.

To design and build this Kraken FPSO, EnQuest and its partners organized a design competition between four companies out of which they selected the Malaysian company Bumi Armada.

For Bumi this award represents a big step to change scale as the Kraken FPSO is about twice as big as the average of its previous FPSOs.

Through Kraken, Bumi expects to join the first league of the key players in FPSO charterer or constructors.

In order to start production on end of 2016 or early 2017, EnQuest and its partners, First Oil and Cairn are committed to finalize the agreement with Bumi for Kraken FPSO on at the end of November.

For more information and data about oil and gas and petrochemical projects go to Project Smart Explorer

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