The Netherlands is a mature gas province providing Lundin Petroleum with stable offshore and onshore production supplemented by attractive fiscal terms. Lundin Petroleum has net reserves of 4.9 MMBOE.
Introduction
Lundin Petroleum’s portfolio in the Netherlands consists of numerous, minor interests in production and exploration licences both onshore and offshore (see concession table for details). This portfolio provides a stable and predictable cash flow and provides exposure to a variety of hydrocarbon plays with reservoir targets at Carboniferous, Rotliegend, Zechstein, Triassic, Jurassic and Lower Cretaceous intervals.
Lundin Petroleum has an interest in fourteen offshore gas production licences in the Netherlands sector of the North Sea along with five licences onshore. It also has interests in one of the major Netherlands pipeline systems. It does not operate any of these licences and has working interests ranging from around 1.2% to 7.8%. In addition to the production licences, Lundin Petroleum holds interests in one offshore exploration licence. The working interest in this licence is 10%.
All of the acreage is close to existing infrastructure. The extension of the NGT pipeline, from the Gaz de France operated L10 complex to the NAM operated D12/D15 blocks near the UK/Netherlands median line, brings facilities closer to the licence E16/E17, which was granted a production licence. In addition, it has a strategic value to the Lundin Group through the benefits of its B.V. status in the Netherlands, allowing significant tax benefits to be realized by the Netherlands subsidiaries. In order to enjoy this tax benefit, Lundin Petroleum intends to continue to produce hydrocarbons within the Netherlands and maintain its local office.
Offshore Assets
The offshore portfolio consists of offshore acreage centred on the K and L blocks in which the predominant play is the Slochteren Formation of the Lower Permian. Elsewhere the F6 and F15 blocks occur at the southern extent of the Dutch Central Graben. Block E16/E17 is located at the western margin of the Dutch sector close to the Netherlands/UK median line and block Q16 is located close to the Dutch mainland near the Rotterdam gas terminal.
The South Permian Basin of the Southern North Sea is the most important gas province in Europe. The basin is aligned broadly E-W extending from onshore England in the west to the eastern Polish border in the east. The prolific Rotliegend gas play in this basin occurs where the three elements of Carboniferous Coal Measures source rocks, Permian Rotliegend reservoirs and Permian Zechstein top seals are superimposed.
Facilities
Lundin Petroleum has interests in a number of offshore platforms, subsea developments, onshore wells and onshore treatment facilities. In addition, Lundin Petroleum has a 1.81 percent interest in the NOGAT pipeline. Broadly, offshore gas production is concentrated in a core area in the K and L blocks. Production from the K4a/K5b is treated at the K5-P platform and transported through the Wintershall operated, WGT pipeline system to Den Helder.
In the K6, L7 area treated gas from the K6-PP platform, on K6-C, is transported to Uithuizen via the K9C-A platform and the Gaz de France operated L10 platform where it enters the NGT pipeline system. Production from the L4a fields is brought to the L7-C Central complex from which point the processed gas is also exported to the L10 complex and routed along the NGT pipeline.
Gas production from the F15 and F6 fields is exported via the NOGAT pipeline system, operated by NAM, to Den Helder. Gas production from the Q16-FA single well subsea development is tied back to a Taqa operated pipeline.
E16/E17 blocks were granted a production licence in 2007 and the FDP for a new production platform has been approved to start production scheduled end 2009.
Onshore Assets
The onshore blocks are located in the northern part of the Dutch mainland around the Waddenzee area. The onshore acreage includes licences on both the onshore Netherlands areas and acreage in the Waddenzee. The Waddenzee is the shallow inland sea located between the northern Netherlands mainland and the cordon of islands from Texel to Ruttumeroog. The northern part of the Waddenzee is almost entirely covered by NAM operated licences on Groningen and Noord Friesland. Elsewhere, much of the area is unlicenced apart from the Leeuwarden and Zuidwal concessions in which Lundin Petroleum has an interest. Though the Wadenzee as a whole is considered prospective, environmental concerns have limited exploration activity. The onshore properties amount to 17% of the proven plus probable reserves in the Netherlands for Lundin Petroleum.
Onshore Facilities
The onshore fields have processing and dehydration treatment facilities near the wells. Lundin Petroleum has an interest in the following treatment facilities, Harlingen treating Leeuwarden West fields, Garijp, treating the Leeuwarden East fields. The Zuidwal field produces gas into its own dedicated pipeline to where it is treated and enters the Gasunie grid. In addition to offshore platforms, Lundin Petroleum has interests in a number of inter-field pipelines.
Marketing and the Netherlands Energy Markets
Natural gas is the most important energy source in the Netherlands, accounting for approximately one-half of domestic primary energy demand. The Government plays an active role in the natural gas value chain through its policies and its shareholdings in GasTerra. All gas currently produced by Lundin Petroleum is sold to GasTerra, which is the predominant gas buyer in the Netherlands,owned 50% directly and indirectly by the Netherlands State, 25% by Shell and 25% by Exxon.
Netherlands gas policy is based upon the “Nota de Pous” legislation of 1961 that states that the exploitation of Netherlands gas reserves should be harmonized with the sale of such gas and that security of long-term gas supply should be a state task. In order to meet this objective, GasTerra is required by the Government to operate within a strict depletion policy in order to ensure long term security of supply for domestic gas consumers. Specifically, there must be sufficient reserves to cover 25 years of the sum of Netherlands domestic gas demand plus contracted export commitments.
GasTerra will also facilitate the development of new fields by providing an immediate market for all gas production. This policy is achieved by the ‘marginal fields policy’ and is achieved by utilizing the Groningen field to balance seasonal fluctuations in supply so that GasTerra can take production from the smaller offshore fields at a high load factor
All Gasunie gas purchase contracts signed with the domestic producers over the past decade have been for the life of the reserves by field or block and deploy a Norm Inkoop Prijs (“NIP”) algorithm for determining the price to be paid by GasTerra for the gas produced. Conceptually, the NIP gas price mechanism attempts to provide a proxy for GasTerra’s end user market by deriving a price based on competitive fuel in the industrial sector (heavy fuel oil) and residential market (gasoil) in both the domestic (Rotterdam pricing point) and export markets (German pricing point).