Netherlands

Strategy summary

Northern will continue to develop incremental new production from its additional undeveloped onshore oil and gas fields to augment the six fields now on stream. Northern’s involvement in The Netherlands was initiated in 2004 and has been built around two core areas containing both oil and gas fields. The four gas fields have been developed first and the development of two oil fields in now underway. Continuation of the onshore exploration and development programme is coinciding with rising gas prices and a strong oil price.

The recent success of unconventional resources for shale gas and oil in North America has been the driver to assess this resource potential in The Netherlands and initial studies indicate that the Andel III Licence in the West Netherlands Basin has a potential world class shale play that in this part of the Basin is viable for oil. The ongoing work will quantify the resource potential for Andel III and the other Northern licences in the Basin and the requirements to develop this resource.

Review of 2010

Overview

In the period (2009–2010) Northern brought four new gas fields into production (Grolloo, Geesbrug, Brakel and Wijk en Aalburg) adding considerably to the late-life production already in place at Waalwijk and P12. Brakel came on stream in September 2010 and Wijk en Aalburg in December 2010. Average production for 2010 was 1,195 barrels of oil equivalent per day and average production for the first four months of 2011 was over 1,900 barrels of oil equivalent per day. Gas prices received in the Netherlands rose strongly during 2010 and increased by approximately 13% in the first four months of 2011.

The four fields brought into production are all wells originally drilled and subsequently suspended as gas discoveries by NAM, the original wells being utilised as the production wells. With the exception of the Geesbrug field they are being produced as single well developments. In the case of Geesbrug new wells will be required to affect an efficient gas extraction programme. A second production well at Geesbrug is being designed with a long lateral intersection of the reservoir unit with the capability of conducting multi-staged hydraulic fracturing operations. The planning of this more expensive and more productive well should await the gaining of reprocessed 3D seismic over the field and sufficient production history in order to design the extraction plan with increased confidence in its performance.

Development planning for two oil fields has been undertaken in 2010 that will result in a production well drilling and testing activity in 2011. The first development well on Papekop has been designed and preparation work for the wellsite has been approved. Reprocessed 3D seismic data will be available for planning the final well trajectory which will include a horizontal hydraulically fractured intersection of the reservoir. The Ottoland long term oil test is also being designed and permits are expected to be in place for the commencement of the test in the third quarter of 2011.

The rapidly increasing production from unconventional shale gas and oil developments in North America basins has initiated a review of this potential resource for the acreage under licence in the Netherlands. This analysis has been done in association with NuTech Energy Alliance, a Houston based consultancy with considerable expertise and experience in analysing shale resources. The work initiated for the Andel III licence has indicated the Licence has considerable potential for oil production from a shale sequence considered to be more prospective than most basins in North America. Work is now continuing to quantify the resource for all the West Netherlands Basin licences of Utrecht, Andel III, Engelen and Waalwijk.

Producing fields

Brakel gas field (45% NPN)

Commercial gas production commenced at the Brakel field in September 2010. The forecast contracted gross sales volume for the field commenced at 200,000 normal cubic metres per day (7.4 million standard cubic feet per day) or 1,280 barrels of oil equivalent per day. Some condensates are also being produced for sale. This is the first of the fields that Northern has installed a dedicated gas plant for the processing of the gas prior to pipeline export to the grid. The field production rate has been in line with predicted performance.

Geesbrug gas field (45% NPN)

Geesbrug was brought on stream in December 2009. The field provided an initial production rate of 7.4 million cubic feet per day. The production performance since then has been analysed in conjunction with the disappointing results of the Tiendeveen-1 well five kilometres away. An updated static reservoir model has been constructed based on the test of this exploration well, updating the dynamic model will follow. A revised reserves assessment for the Geesbrug field has resulted from the revision of Gas Initially In Place volumes derived from the updated static model.

Reprocessing of all applicable 3D seismic coverage was deemed essential for placing future development wells in the field and was initiated in 2010 as part of the forward development plan. The planned 2011 Geesbrug-2 new production well will most likely be delayed into early 2012 to utilise the reprocessed 3D seismic data to determine the most appropriate location of the well. This is designed to be a 3000–4000 foot lateral reservoir intersection with multi-stage fracturing operations which are designed to result in a greater ability for higher production rates than near vertical wells.

Grolloo gas field (45% NPN)

The Grolloo-1 well work-over has been completed and the field came back on stream in November 2010 at a rate of 200,000 normal cubic metres per day (7.4 million cubic feet per day or 1,280 barrels of oil equivalent per day). The initial development plan had been to install compression and or other surface equipment to aid and increase production once the pressure had stabilised. Until now no such stabilisation has been observed allowing for the basis of design for the equipment.

The addition of compression cannot be achieved in time to make a material impact to 2011 gas production. The more conservative view is that pressure support from lower permeability reservoir matrix will not occur to support reservoir pressure and a revision has been made to reported reserves on this basis.

Wijk en Aalburg gas field (45% NPN)

Gas production was commenced in December 2010 at an initial rate of up to 150,000 normal cubic metres per day. This is the second field where Northern has installed a dedicated gas plant. The development well has experienced the production of increasing quantities of oil, followed by increasing quantities of water, which has affected production levels. This is being addressed with well intervention operations to assess possible remedies. Given the uncertainty to future production rates it has been decided to make a revision to reported reserves.

Ottoland oil field (45% NPN)

The production test of the Ottoland oil well awaits planning approvals but is scheduled for 2011. Development design will be initiated following the test results.

Papekop oil and gas field (45% NPN)

There has been some money-saving progress in tackling road access to the well site at Papekop. Approvals have been received to allow the drilling and testing of a new development well in the Papekop oil field to also take place in 2011.

Waalwijk gas field, North (16.67% NPN), South (50% NPN)

The field continues in production with compression equipment being re-engineered to further enable extended field performance. The four new fields that have been brought into production are controlled remotely from the control centre at Waalwijk.

P12 (23.61% NPN)

In 2010 production was impacted due to compressor problems. The compressor was removed from the platform and then re-commissioned in April 2011, production levels are now back up to the expected rates for the remainder of the year.

Production licence

Zuid-Friesland III licence (44.34% NPN)

Northern has acquired two further development projects and operatorship, through the award of the Zuid-Friesland III production licence in 2010. This is a welcome addition to growth plans for onshore Netherlands production and contains two undeveloped gas fields, Oppenhuizen and Woudsend, with estimated Gas Initially In Place of 107 billion cubic feet, with expected recovery factors of the order of 60%.

Exploration

Reprocessing and then re-interpretation of the 3D seismic data over the Andel III (45%), Drenthe III (45%), Oosterwolde (60%), Engelen (60%), Utrecht (60%) and Papekop (45%) licences is underway. This work is necessary to confirm future well locations for exploration prospects planned for drilling in 2012 and beyond.

Applications

An application has been made for one new licence.

Future

Preliminary work on discoveries and exploration prospects is underway with a view to drilling in 2012 and beyond based on the results of the 3D seismic reprocessing now underway for the majority of the Licences. This includes the undeveloped discoveries of Kerkwijk and Willeskop, to be augmented by further exploration drilling on the Drenthe III Licence.

Exploration wells on the Oosterwolde and Utrecht licences are also planned for 2012 alongside our partner EBN, who has elected to enter onshore The Netherlands exploration licences alongside Northern in three separate joint ventures.

The review of unconventional shale oil and gas potential was initiated for the West Netherlands Basin with NuTech Energy Alliance undertaking detailed log analysis of the Andel-6 (Wijk en Aalburg), Brakel and Ottoland wells in the Andel III Licence. This work is not yet finalised but will be expanded to the other adjacent Licences and a resource potential calculated for the Andel III, Engelen, Waalwijk, and Utrecht licences based on the lateral extent and thickness of the shale horizon identified as the main oil resource potential. NuTech have identified additional intervals in the three wells analysed that are gas bearing and when compared with similar reservoir properties in North American basins would be considered productive horizons. Further analysis will be undertaken in conjunction with NuTech to quantify this potential.

Consideration is also being given to extending the work with NuTech to additional areas in The Netherlands once the current work programme is completed.

Given that Northern has a greater than 50% interest in a number of these projects, it is likely that it may seek to de-risk the portfolios by bringing in additional partners into some of these licences.