Shell is going ahead with the redevelopment of the Penguins oil and gas field in the UK North Sea, the oil major said on Monday in its first major oil project sanction in the North Sea in six years.
The final investment decision (FDI) on the project authorizes the construction of a floating production, storage, and offloading (FPSO) vessel-Shell's first new manned installation in the northern North Sea in almost 30 years.
Shell did not provide details on the total cost of the redevelopment, but analysts at Bernstein had estimated the project cost could be up to US$2.5 billion, according to Reuters.
At peak production, the FPSO is expected to deliver around 45,000 barrels of oil equivalent per day (boe/d), and the go-forward breakeven price is below $40 per barrel, Shell said, in a sign that the oil majors have cut costs and reviewed projects to pump oil at competitive prices from a mature offshore area like the North Sea.
Under the redevelopment plan, Shell will drill eight new wells at the Penguins field and tie them back to the new FPSO vessel.
"Having reshaped our portfolio over the last twelve months, we now plan to grow our North Sea production through our core production assets," said Steve Phimister, Vice President for Upstream in the UK and Ireland.
Related: Could An Oil Surplus Be A Sign Of Things To Come?
The Penguins field, discovered in 1974, was first developed in 2002 and is a 50/50 joint venture between Shell and ExxonMobil.
The UK Oil & Gas Authority welcomed Shell's FID.
"We are expecting further high value projects to move forward to sanction this year which will help prolong UK production for many years," Andy Samuel, Chief Executive of the Oil and Gas Authority, said.
The trade association Oil & Gas UK also welcomed Shell's announcement, calling it "great news and an exciting start to the new year."
"We are hopefully entering a more positive phase for our industry in the UK with new projects on the horizon that I hope will bring a much needed boost for companies in the supply chain," Deirdre Michie, Chief Executive of Oil & Gas UK, said.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
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Comments
At the height of the steeply declining oil prices during 2014-2016, the global oil industry was forced to sell many of its production assets and cancelled more than $200 bn in oil & gas investments.
At prices much below $75/barrel, some of the North Sea’s remaining economically-recoverable reserves, estimated at 15 and 16.5 billion barrels (bb) of oil and natural gas, could have ended up as so-called stranded assets – hydrocarbons that are simply too expensive to develop.
Higher oil prices above $70/barrel stimulate the global economy through rewarding the oil-producing countries, enhancing global investments and enabling the global oil industry to balance its books and invest in new projects. Still, I maintain that a fair price is £100-$130/barrel.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London