Scotland – written off in some quarters but proving that its mineral wealth can induce a come-back. Michael Schwartz explores the region.
As Materials World reported last month on the changing reputation of Wales’s mineral sector, similarly, the image of Scotland being another defunct source of minerals is no longer tenable. Clearly, industry has not deserted the country, North Sea oil and gas is going strong and one company’s efforts to develop Scotland’s first commercial-scale gold mine have drawn attention.
North Sea oil rigs were always going to run out of oil to extract and come to the end of their usefulness. Decommissioning is now, therefore, a crucial challenge. Decom North Sea is a single-topic, multi-region membership organisation that connects the skills and capabilities vital to achieving decommissioning as efficiently as possible. Following its inception in 2010, Decom North Sea has grown to more than 350 members drawn from operators, major contractors, service specialists and technology developers.
Since Oil & Gas UK’s Decommissioning Insight Report of 2017, the cost of decommissioning has been predicted to run to £17bln by 2023. In the view of the report writers, successful supply-chain set-ups and efficient cooperation across sectors is needed, contributing to ultimate success.
In brief, literally hundreds of oil rigs will be decommissioned in the forthcoming decades. The industries concerned are aware of their responsibilities – the newly built concrete. Quayside on the River Tees and the massive surrounding areas due to receive the consequent scrap metal testify to this.
In more detail and to put decommissioning into perspective, an oil rig superstructure from the Brent field, has to be brought some 640km from the field to the Teesside dock. Four rigs built by Shell make up the Brent field – Alpha, Brent, Charlie and Delta. Add the topside to the feet of the rigs in the seabed and decommissioners are dealing with edifices as tall as the Eiffel Tower.
Shell has stated that the Brent rigs will comprise just four of approximately 600 installations to be decommissioned in the North Sea over the next 30-40 years. To date, around 10% of the North Sea industry has been submitted for decommissioning. In addition, some 40 decommissioning programmes have been submitted to the government’s Department for Business, Energy and Industrial Strategy, which regulates the decommissioning of offshore oil and gas installations and pipelines in the UK.
If Brent’s superstructures are enormous, the vessels that carry them to Teesside are breathtaking in their scale. A ship called Pioneering Spirit will lift the 24,000t Delta topside and take it to the mouth of the Tees. Next, another vessel, the Iron Lady barge, will take the topside into the quay itself at Seaton Port. Equally amazingly, the structure will be slid ashore rather than lifted.
Pioneering Spirit is believed to be the largest construction vessel ever built, matching the demands of the heaviest lift in history. The topside will be broken up in the strongest quay in Europe, where the dock is operated by Able UK, a local private company.
The number crunching is also impressive. Decommissioning attracts tax rebates, which in turn can cover 70% of clean-up costs. These rebates are substantial, reflecting the vastness of the sums paid in taxation to the UK government – £330bln. At present, tax rebates sometimes exceed tax revenues, with the government possibly facing a deficit of £24bln after decommissioning concludes.
Just when you thought it was safe
Petroleum company Azinor Catalyst Ltd has stepped up to open a new oilfield in the North Sea. The London, UK, based company is targeting a portfolio of high-value assets on the UK Continental Shelf. Selective acquisitions and licensing applications will kick-start Azinor’s venture.
Once this phase is over, Azinor Catalyst looks towards becoming a leading North Sea independent, exploiting low-risk production and development opportunities. An extensive seismic database will assist the company. Azinor draws its confidence from the UK’s world-class petroleum basins, noting that some 43 billion barrels of oil equivalent (BOE) have already been recovered, with anything between 10 billion and 20 billion BOE still waiting, according to the UK Oil and Gas Authority in 2017.
In support of this, Azinor Catalyst cites further figures from the UK Oil and Gas Authority, noting average unit operating costs are down by over 45% and production efficiency up from 60% in 2012 to 73% in 2016, leading to a production increase of 16% from 2014 to 2016. Effective UK tax rates of below 40% for new fields are another welcome factor.
At present, Azinor Catalyst is underway with its 2019 programme of drilling at three prospects. In all, it stresses a de-risking strategy for all three being:
- Boaz, which is 100% owned by Azinor Catalyst. Boaz lies near the Eirin Triassic gas condensate discovery in Norway. Prospective resources are in the region of 242 million BOE. Cost of the well is expected to be US$21m
- Goose, a stratigraphic trap with a lower cretaceous scapa sandstone objective. It lies adjacent to an existing oil discovery made in the Scope sandstone reservoirs, and offering 75 million BOE. The dry-hole well cost is estimated at US$11m
- Hinson prospect, an upper jurassic trap in the hanging wall of the West Central Graven bounding fault. Here, the well cost is expected to be US$21.5m yielding 176 million BOE.
Perhaps reflecting the trend towards decline in the North Sea, the Azinor Catalyst prospects mentioned above are large by current standards. There is, in addition, some flexibility in that Boaz and Hinson could operate on a standalone basis.
Funding for Azinor will come from the Seacrest Capital Group, an oil and gas investment firm headquartered in Bermuda, which will provide stability to fulfil a policy of high-value exploration and low-risk production and development.
Scotland’s first commercial gold mine
Through AIM-listed Scotgold Resources Ltd, Scotland is set to host its first commercial gold mine. The Cononish gold and silver project is based in north-western Scotland’s Grampian Highlands and includes silver and gold deposits. Cononish Farm also lies within the north-western extremity of the Loch Lomond and Trossachs National Park, about 90km from Glasgow. Materials World would like to acknowledge the insight from Scotgold Resources’ Non-Executive Director Clive Sangster in compiling this article.
In preparation, Scotgold Resources completed a bankable feasibility study (BFS) in August 2015, which provides a basis for potential finance providers. Key statistics at present comprise 60,000t measured in situ with 15.0g/t producing 29,000oz. This is supported by 474,000t indicated in situ hosting 217,000oz of gold at 14.3g/t.
In geological terms, the large tectonic block called the Grampian Highlands is described by Scotgold Resources as ‘highly prospective’ for gold and base metals. The block is itself a continuation of the Dalradian gold province of Northern Ireland, which has base metals including copper, zinc and lead, the latter having been mined for about a century from 1741 at the Tyndrum lead mine.
Exploration of this region has identified the Tyndrum-Glen Fyne Fault – a key fault structure of the Grampian domain – as having significant potential for lode-hosted gold mineralisation. Judging by similar settings globally, there is scope for gold extraction, a conclusion backed up by the British Geological Survey which also has geochemical surveys confirming the potential.
Applications by Scotgold Resources for gold and silver exploration licences go back to November 2007. Since then, the company has received permission to explore over an area of 4,100km2, which covers much of the prospective Dalradian grouping. Sangster confirmed that several key mining staff have been recruited for Cononish, including a mine manager and processing manager. The company has been offered a regional selective assistance grant of £430,000 from Scottish Enterprise for the development of Cononish. This grant would depend on employing 36 full-time staff and a first-phase capital expenditure of £8.6m. Discussions continue.
Planning for Cononish
February 2012 witnessed the Loch Lomond and The Trossachs National Parks Authority (NPA) granting planning permission to develop Cononish, just before the Crown Estate Commissioners unconditionally granted the Crown Lease. Subject to certain changes in the conditions, Scotgold Resources received permission to develop Cononish in early 2015.
In January 2015, the company completed a mineral resource estimate (MRE), which led to August 2015’s BFS. After a subsequent bulk processing trial (BPT) in February 2016, the first gold pour took place in August 2016. Next, it was a rethink rising from the BPT that resulted in a new approach to tailings disposal. This has, in turn, led to significantly reduced upfront capital costs and potentially major environmental benefits. These advantages were submitted for planning approval, which was granted in February 2018.
At present, Scotgold Resources’ strategy is two-fold. Under its first phase, underground production at half-capacity is now underway, with a 3,000t/month target achieved – this needs a 7.5t/hour process plant. By spring 2020, this production rate will be superseded by a second phase running at full production. Here, the mine will run at 6,000t/month as planned in the BFS. This second phase will be self-funded. Development of the project commenced December 2018.
When asked about destinations for the gold, Sangster replied that some of the mineral would be sold locally, with the balance being sent in concentrate to smelters through a sales agreement. One other aspect is gold’s status as a Crown Mineral, something confirmed by Sangster, although he said that royalty rates remain confidential.
Clearly, while the initial image of the Scotland’s extractive industries appear grim, this is illusory, as the dearth of projects on the horizon demonstrate.