Oil and Gas Exploration and Production in the U.K. North Sea

First Japanese company to participate in oil-rich U.K. North Sea

Oil and gas are crucial energy sources that enable us to maintain our current high standard of living. Sumitomo Corporation, together with the Sumitomo Group, launched its first oil and gas business in the 1970s in order to make these valuable resources available both in Japan and overseas. In the 1980s, we expanded our operations to encompass the U.K. North Sea, ahead of other privately owned Japanese companies. Since doing so, this region has been our core area of business.

Due to a long history of oilfield exploration, the U.K. North Sea can boast not only established infrastructure but also a tested legal framework, making it easier to do business in the area. What’s more, various data proves the existence of vast reserves of crude oil and natural gas lying in wait beneath the sea floor. Taking into account the high oil production levels that have been achieved in the past and the abundant reserves, this area is one of the world’s most promising hydrocarbon basins in terms of profitability and stability.

Balanced portfolio at three upstream stages

In the U.K. North Sea, Sumitomo Corporation is currently focusing on three stages of upstream operations: exploration, development, and production.

Exploration is the stage of searching discovery of oil or gas fields, which is feasible for commercial production. Utilising seismic data, subsurface surveys are conducted. When a potential geological structure is found, an exploratory well is drilled to confirm the availability of oil or gas. After that, an appraisal well is drilled to assess the extent of the field and the reserve. With this information, a investment decision is then made as to the viability of commercial production. If it is positive, the project moves into the development stage: a production well is drilled for the extract of the crude oil or natural gas while facilities for production and treatment are established. Once facilities and systems are in place, the project enters the production stage.

Oil and gas upstream business can generate revenue only after the production stage is entered into. When we first launched our oil and gas upstream business, therefore, we began by purchasing interests in oil and gas fields that were already producing. Gaining expertise and technological capabilities, we acquired interests in oilfields at the development stage and in licenses of blocks at the exploration stage, thereby expanding our portfolio to cover the full cycle of oil and gas upstream business.

In 2008, we put oil and gas upstream business as one of the focuses of our energy business and enhanced our U.K. North Sea operations accordingly. We brought in managers well versed in the UK petroleum industry and engineers with high-level reserve assessment techniques, thereby integrating expertise and technological capabilities acquired in both Japan and the U.K.. This helped us to strike the right balance as we sought to expand our operations at each of the three upstream stages.

Our steady efforts and achievements bore fruit in 2009.

Turning point—becoming an operator

We reached a turning point when we were approved as operator for exploration in the U.K. North Sea.

Holding exploration license can take one of two forms: operator or non-operator. The operator is the coordinator of the entire project, in charge of administration, management, and the actual work. The operator presents its non-operator partners with proposals on all matters related to exploration, including drilling location, schedule, technology, and budget. In the past, we had only ever held non-operator interests, which meant that we were powerless to conduct exploration at times that suited us, but rather had to wait on the operator. Becoming an operator ourselves means we were now able to explore at will. Operators are approved licenses based on a comprehensive assessment of their past achievements and technological capabilities. Our receipt of the license was an unprecedented event as we became the first Japanese trading company in the U.K. North Sea to be appointed an operator.

The appointment also enhanced our reach and reputation in the U.K. North Sea. As a result, we have more opportunities to exchange information with operators who have considerable exploration experience around the world, making it possible for us to learn considerable detail about ongoing projects in other areas.

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