By: Larry Busnardo, EnerCom
There is growing concern that the natural gas crisis unfolding across Europe will intensify as the Russia Ukraine conflict enters its seventh month. The situation is being exacerbated by a combination of increased demand as countries are lifting COVID-19 restrictions and declining natural gas supplies due to the lack of investment by the oil and gas industry over the past several years. European countries are scrambling to secure natural gas supplies ahead of the upcoming winter heating season.
Recent Russian rhetoric points to their willingness to cut off supplies to punish the region for their support of Ukraine. While it is expected that European countries may be able to fill natural gas storage facilities to near capacity ahead of winter, the more pressing issue will come to fruition over the next several winters if Russia does decide to suppress supplies.
The United Kingdom’s (“UK”) reliance on natural gas imports is a significant concern as it doesn’t possess the necessary storage facilities needed to maintain adequate inventories. The UK has some of the lowest natural gas storage capacity in the region making it the most vulnerable to the risk of shortages due to its reliance on imports from other European countries, primarily Norway and Russia. For decades the UK avoided investment in storage and would tap its domestic North Sea reserves to supplement winter demand needs. This strategy worked fine until the Rough storage facility was shuttered in 2017. The Rough facility provided approximately 70% of the UK’s gas storage capacity for over 30 years and was shut down following the government’s decision to stop subsidizing the costly maintenance and upgrades needed to maintain the facility and keep it running. This has left the UK exposed to the volatility of the global gas markets and forced them to compete with other countries for more expensive imports with the cost passed along to the UK consumer. Further, natural gas supplies from Norway are presently in high demand and will not be able to satisfy the UK’s projected demand.
Separately, European countries have been actively engaged in expanding their liquified natural gas (“LNG”) receiving capacity as an alternative to Russian natural gas supplies. LNG is viewed as a more attractive alternative as tankers can ship it from allies rather than through Russian pipelines. It is estimated that there are currently 25 projects to either build or expand LNG terminals in the region, however, regulations, cost, and the time required to build new facilities will likely delay or derail most of the projects. Adding further strain to the system is the fact that current European LNG regasification facilities are running at near capacity with the first major capacity addition from Qatar not becoming operational until 2026.
The renewed focus on the development of new oil and gas fields in the UK North Sea is ultimately needed to increase natural gas output to alleviate production declines and ensure the UK’s energy security. Drilling in the UK North Sea slowed considerably in recent years as larger companies looked to explore for hydrocarbons in new, less mature frontiers, primarily in developing countries worldwide, which they considered more profitable and more likely to contain large resource potential. This attention elsewhere has contributed to a sustained production decline in the UK. For its part, the UK government has been supportive of new investment and has recently pushed ahead regulatory approvals of new development projects to maximize production from its ample North Sea resource base. Furthermore, the UK government is urging producers to boost investment in exploration projects to ramp up domestic oil and gas production to combat both high natural gas and oil prices.
One company poised to materially benefit from the renewed interest in UK North Sea exploration is Horizon Energy Global Corporation (“Horizon”), an exploration and production company boasting a large offshore, shallow water exploration project in the Mid North Sea High area of the Southern North Sea. Since its inception, Horizon has strategically targeted and assembled a substantial acreage position and high-quality prospects within its focus area, containing a world-class natural gas and oil resource opportunity. As the broader European region and the UK in particular look at ways to ensure their domestic energy security into the future, Horizon’s timing couldn’t be better.
Horizon was founded by a seasoned team of industry veterans with decades of senior leadership experience within the oil and gas industry, who have a demonstrated track record of creating significant value for their stakeholders. Horizon’s Senior Leadership Team is led by Executive Chairman Jonathan Rudney and CEO Stephen Brunner, who have considerable experience operating assets internationally and in offshore environments.
Over the past six years, the Horizon team has meticulously assembled, and controls, a strategically placed, high-value, contiguous offshore position of approximately 600,000 acres in one of the largest offshore undeveloped basins in the North Sea. Horizon’s licenses are surrounded by major and large independent oil companies in an area historically overlooked by industry due to a lack of modern 3D seismic data and previous dearth of drilling activity. Notably, the UK offers excellent fiscal terms, political and regulatory stability, and the UK government is promoting the Mid North Sea High area as a premier exploration and development opportunity.
Speaking about Horizon’s North Sea resource opportunity, Chief Executive Officer Stephen Brunner stated “We purposefully selected the UK North Sea given its low cost of entry, its prolific resource potential, and the fact that it is located in an overlooked exploration area, which has afforded a lower cost of entry. We are highly confident that our proven technical approach significantly mitigates the risk typically associated with exploration plays and we are excited about the potential that this world-class opportunity will have for Horizon.”
Horizon’s highly experienced technical team is comprised of geological, geophysical and petroleum engineering professionals that have conducted a detailed analysis of the Mid North Sea High area utilizing cutting-edge technology, including the acquisition of the first modern 3D seismic surveys in the region covering their acreage and the development of advanced geological models, as well as the reprocessing and reinterpretation of extensive, previously existing geological and geophysical data. Horizon plans to drill an initial exploration well as early as late 2023, located near an oil and gas discovery made by two large independent companies in 2019, further de-risking Horizon’s opportunity.
The Mid North Sea High area where Horizon’s licenses are located supports drilling in shallow water of approximately 100 feet, at a relatively modest drilling depths of less than 9,500 feet and is in an area with nearby pipeline infrastructure. The estimated drilling and testing cost of an exploration well is less than $20 million, which is a fraction of the cost to drill wells situated in deep water environments with deeper drilling targets, that can cost as much as $150 million. Project economics are extremely compelling given low finding and development, as well as operating costs, and economics remain robust in a $50 per barrel price environment.
“This is an exciting time for Horizon as we are on the cusp of kicking off our UK drilling program after many years of persistence and diligent preparation. We have an exceptional acreage position and technical team that together give us a competitive advantage compared to other exploration companies. Furthermore, our rigorous technical analysis, underpinned by state-of-the-art 3D seismic data, gives us high confidence in our prospect’s resource potential, affording a true company maker opportunity.” said Executive Chairman Jonathan Rudney.
With its recently acquired state-of-the-art 3D seismic data sets, Horizon has identified prospective resources of over two billion barrels of oil and gas equivalents from its top prospects which cover multiple geological objectives. Given that the Mid North Sea High area is in shallow water and with established infrastructure and takeaway capacity already in the area, management anticipates that the development of a discovery or discoveries will advance expeditiously.
As the Ukrainian conflict continues to highlight, it is becoming abundantly clear that securing domestic natural gas production and ensuring future production sources is a top priority for the UK. The UK Southern North Sea sector likely contains a large volume of untapped, world-class reserves backed by modern 3D seismic data supporting its reputation as a premier exploration and production area. Given Horizon’s substantial and contiguous acreage position in the heart of the Mid North Sea High play, Horizon is well positioned to capitalize on this vast opportunity.
To learn more about Horizon and its premier drilling opportunities, please visit the Company’s website at www.horizonenergyglobal.com
Larry Busnardo is a Director at the energy consulting firm EnerCom, Inc. He has over twenty-five years of diverse experience in corporate finance, capital markets, investor relations, sell-side equity research, corporate strategy and ESG.
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