105 



Stepouts are not always successful because permeability cun vary widely in a 

 productive structure. Phillips, for instance, drilled a dry hole on a confirmation 

 test south of its Block 49/6 discovery and canceled plans for a fixed drilling- 

 production platform. Shell was shocked when its confirmation test in Block 49/26 

 turned out dry, but two later wells found the gas. 



Development plans hatch. In high spirits, successful wildcatters mapped pipe- 

 line routes and picked development-platform sites. Based on just one well in 

 Block 48/6, BP signed a Gas Council contract to deliver at least 50 MMcfd and a 

 maximum of 100 MMcfd for 3 years at a price of 5 pence/therm, which works out 

 to about 58 cents/Mcf. A new price must be negotiated after 3 years and for any 

 deliveries above 100 MMcfd. 



Under British licensing, about half of a North Sea producer's income from 

 sales will go to the government in royalties and taxes. This is a common arrange- 

 ment all around the sea. From the other half, the producer recovers exploration, 

 pipeline, and exploitation costs. What's left is profit. 



The government-owned Gas Council gets first call on all gas. If producers can 

 convince the U.K. Minister of Power that the council has failed to offer a "rea- 

 sonable" price, the minister can approve sales directly to industry. 



A Gas Council price is for gas delivered ashore. Each producer must build and 

 maintain an off-shore-pipeline system. BP laid 42 miles of IG-in. from Block 48/6 

 to the coast near Easington where the Gas Council connected the line to an exist- 

 ing grid which distributes imported Algerian gas throughout the island. Local gas 

 boards use the methane to enrich town gas, which is manufactured from coal and 

 consumed largely in kitchens for cooking. 



Britain now burns 1 billion cfd of natural-gas equivalent in the form of coal 

 gas, imported Algerian methane, and gas made from naphtha. According to the 

 Gas Council, the landed price of BP's North Sea gas is slightly less than the 

 landed price of Algerian gas, which had been Britain's cheapest gas source. 

 Based on BP's experience, other producers had good reason to hope for around 

 5 pence/therm because this appeared competitive with other sources. 



In the meantime, however. Gas Council officials had drawn up a 10-year plan 

 to convert its entire town-gas network to natural gas and envisioned doubling 

 or quadrupling sales through space heating and industrial applications. To take 

 quick advantage of this new source of energy, the council said, North Sea gas 

 might have to be priced at around 2^2 pence/therm or about 29 cents/Mcf. Pro- 

 ducers howled in dismay. 



Minister of Power Richard Marsh observed that North Sea gas would be 

 expected to help improve Britain's balance-of-payments problem by taking up 

 some of the energy market that would otherwise be met by imported fuel. Be- 

 sides Algerian gas, the U.K. imports 86,000 tons/day of oil. But, Marsh stressed, 

 ^"oducers must get a price that will encourage continued, vigorous exploration, 

 liingland's supply of North Sea gas, he added, is too small at present to make 

 much of a dent in the overall energy pattern. 



Marsh's view must prevail, producers insisted, if they are to press forward 

 with exploration and development. 



Eastern half barren. Meanwhile operators in the eastern part of the North Sea 

 might welcome something to wrangle over. So far, waters of Norway, Denmark, 

 and Germany are studded with nothing but dry holes or wells that produced non- 

 commercial gas. 



These three countries all have Permian prospects. 



Also, the northern U.K. side is untouched but is believed to be a Tertiary basin 

 with good prospects for oil. 



The German consortium has run up a score of 11 worthless holes in as many 

 tries. However, it will take much more drilling to condemn the whole area. 



Drilling off Norway and Denmark got off to a slow start, and these two coun- 

 tries count only three holes between them with nothing significant reported. 



Holland's Parliament has yet to present an acceptable plan for luring drillers 

 into its promising offshore sector. Nothing offered yet makes the risk attractive. 



Risks run high: Throughout the North Sea, operators can point to some of 

 the biggest expenses and some of the worst operating conditions they have ever 

 encountered. Each hole costs about $2 million. 



Though year-round drilling has proved completely practical, waiting-on- 

 weather time always eats up a few thousand dollars on each well. Most weather 

 delays occur in moving rigs or in transporting men and supplies. The companies 

 try to keep 3 weeks to a month of supplies on their rigs. 



