CEO interview: “Onshore oil industry must generate cash for well decommissioning”

By Ruth Hayhurst on August 20, 2024

The UK onshore industry needs to raise money to plug and abandon hundreds of redundant oil wells as part of the energy transition, Angus Energy’s chief executive told DrillOrDrop.

Richard Herbert, chief executive of Angus Energy.
Photo: Angus Energy

In an extended interview, Richard Herbert said the onshore industry had to follow the North Sea’s example and invest to decommission old wells.

He said:

“It’s not on the same scale as the North Sea was but the [onshore] industry has hundreds and hundreds of wells to abandon safely, so that they don’t pollute future water courses.

Official data analysed by DrillOrDrop shows there are nearly 500 UK onshore wells that are not classed as operating but have not been fully decommissioned. More detailed article coming soon.

Mr Herbert said:

“[site operators] 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.”

Mr Herbert, who runs the UK’s biggest onshore gas field at Saltfleetby in Lincolnshire, said the onshore industry was playing “a very important role” in the energy transition “that maybe people don’t’ understand when they look at our business model.”

He said:

“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.

“the big [offshore] 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.”

He said the investment tax breaks in the energy profits levy – described by fossil fuel opponents as a loophole – were “critical capital allowances that allow the industry to invest and replenish our domestic production”.

Last month, the new Labour government extended the energy profits levy, also known as windfall tax, by another year. It also increased the rate of tax and removed the investment allowances.

Other key points

Mr Herbert has been Angus Energy’s chief executive since 2023 and was a senior executive at BP. As well as Saltfleetby, his company operates onshore oil sites at Balcombe and Lidsey in West Sussex and Brockham in Surrey.

In his DrillOrDrop interview, he also said:

• The oil and gas industry had to lower its climate impact but developing domestic oil and gas fields was in the best interests of the country
• The industry was “confused” about the implications of the recent landmark Supreme Court judgement on carbon emissions from the use of fossil fuels
• There are plans for new wells or workovers at the Saltfleetby gas field and hints of onshore acquisitions
• Angus is applying to bring in formation water for injection at Brockham
• Balcombe, in the High Weald Area of Outstanding Natural Beauty, would be “too difficult” if starting from scratch
• The Weald oil fields are “small and complicated” and there are questions over their potential

Read a transcript of the interview

Climate and onshore oil and gas

Mr Herbert said:

“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.”

He said:

“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.

“I think the whole industry recognises that if we are given a chance to produce and develop 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.”

Campaigner Sarah Finch who brought the successful legal challenge at the Supreme Court on downstream carbon emissions. Photo: DrillOrDrop

On the recent landmark Supreme Court judgement on carbon emissions, he said:

“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.”

The court ‘s majority judgement said Surrey County Council should have taken into account downstream emissions from burning oil produced at UKOG’s Horse Hill site when deciding planning permission.

The decision is expected to have widespread implications for carbon intensive industries, including a new coal mine in Cumbria.

Mr Herbert said it was difficult to know how the judgement would affect Angus Energy and the onshore generally. He said “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.”

He described the argument, put forward by the former head of BP, John Browne and others, against issuing new North Sea licences as “an interesting point to debate”.

He said:

“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.”

He said he would be “the first to support” Labour’s plans for investment in alternative energy”.

But he said “it can’t come at the cost of the oil and gas industry”.

The energy transition “has to be done in the right way”, he said.

“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.”

Angus Energy in southern England

The Weald – potential in question

Mr Herbert described the Weald oil fields in southern England as “small and complicated”.

Asked whether there was potential for future development of oil and gas in the Weald, he said:

“Probably not.”

He said there was “not much public support from the community” for the industry.

Balcombe – well test, stimulation and wrong location

Balcombe residents challenging the Balcombe well test at the High Court. Photo: DrillOrDrop

At Balcombe, where there were near daily protests during drilling in 2013, local people have delayed a well test by bringing a legal challenge. Angus Energy and the Department of Housing, Communities and Local Government will defend the case at the appeal court in January 2025.

Asked whether the Balcombe oil site, in the High Weald Area of Outstanding Natural Beauty, was in the wrong place, Mr Herbert said:

“If we were starting from scratch today, we would say ‘shall we go and explore for oil in an area of outstanding beauty? Probably too difficult’.”

He acknowledged local opposition to the plans, but said they were “borne out of the fear of fracking”. He said he thought the site could be “developed responsibly without putting at risk the water course and everything that’s in the AONB”.

The well would have to be flowed even if it was going to be abandoned, he said.

“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.”

Asked if Angus Energy planned any form of stimulation of the Balcombe well, Mr Herbert said:

“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.”

He said high volume hydraulic fracturing “never got off the ground in the UK. I don’t think it ever will”.

But he said the industry had been stimulating wells to deal with formation damage “for decades” and “no one ever made a fuss about it”.

“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.”

Mr Herbert said Angus had no recent contact with Frack Free Balcombe Residents’ Association, the group bringing the challenge to the Balcombe well test.

Brockham and Lidsey – water injection plans

At Brockham, near Dorking, Angus said it was seeking permission to import formation water from other sites to inject into the reservoir. It currently has permission to inject just water from Brockham.

The company restarted production at Brockham in June 2024, after a break of 18 months. New production levels were 40-50 barrels of crude oil a day, Mr Herbert said. But 60% of the output from the field was formation water.

Mr Herbert said:

“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.”

He said this permission would allow Angus Energy to restart production at its Lidsey field, near Bognor Regis, which has no water disposal facilities.

Lidsey produced about 15-20 barrels a day in 2020. Mr Herbert said even at this level of production the field “would still be economic”.

“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.”

Saltfleetby

Saltfleetby gas field. Photo: Angus Energy

Last month, Angus Energy applied for planning permission for four new gas production wells at Saltfleetby.

Official figures show the field contributes about 80% of UK onshore gas production. But this represents less than 1% of total UK gas production.

Mr Herbert said the field was currently constrained to about 11 or 12 million cubic feet per day. He said he hoped new wells, workovers and a £3m project to install a booster compressor, would increase production at Saltfleetby.

The company was revising its reservoir model for the field, Mr Herbert said, to shape decisions on future wells and workovers.

Angus and its partner, Trafigua, are also looking at potential gas storage at Saltfleetby. Mr Herbert said “there could be a role” for market-driven storage at the field, where a trader buys a cargo of cheap liquefied natural gas (LNG) and stores it until prices rise.

He added:

“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.”

He also said once Saltfleetby’s gas was worked out, the company would “be looking to see if there is anything else around”, including oil.

Acquisitions and hedging

Angus has previously hinted about new areas of interest and Mr Herbert suggested this could include additional UK onshore fields:

“we recognise that the company has the potential to grow and we can take on more opportunities.”

He said:

“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.

“I think we need to have clearer rules and a clearer understanding of government direction before we commit to that.”

At the time of writing, Angus Energy’s share price was 0.25p. This is down from 1.37p when DrillOrDrop last interviewed an Angus Energy chief executive.

Mr Hebert said:

“I believe we’re significantly undervalued. We’ve had to fight to get through some very difficult situations in the last 12-18 months.”

The company hedged Saltfleetby gas during a period of lower prices and before production from the field got underway.

Mr Herbert said the bubble in the gas price “largely coincided with the period when the field was still being developed”. He said the situation was worsened by the need to honour hedges when there was no production. He said: “there was a bit of a lost opportunity there”.

The hedging commitments will continue until summer 2025 and cash flow would be lower, Mr Herbert said.

“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.”

The company restructured its debt earlier this year and Mr Herbert appeared optimistic for the future. He said:

“We have a very strong asset that has very strong cash generating potential”.

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