Industry Trend Analysis - Near-Field Focus, Cost Reductions To Support New Project Cycle - MAR 2018

BMI View: The continued industry focus on redevelopments, tie-backs and near-field development opportunities will support project sanctions in the UK North Sea over 2018. This will be reinforced by lower unit operating costs across the region and strengthening financial positioning of producers.

The decision by Royal Dutch Shell to greenlight the redevelopment project at the Penguins cluster in the Northern North Sea is indicative of industry momentum behind the development of near-field opportunities and also reflects the significant drop in breakeven costs in the basin over the past three years according to operators. The field will utilise a floating production and storage and offloading (FPSO) vessel to produce at a peak rate of 45,000b/d of oil.

We have argued previously that the period of low oil prices experienced over the last three years will incentivise re-developments, tie-back opportunities and near-field projects over more capital intensive greenfield projects (see 'Tie-Backs, Small-Scale Projects To Be Increasingly Favoured', June 5 2017 ); the cycle of greenfield projects given the go ahead in the previous high oil price environment is set to be completed with the start-up of several larger projects this year including:

  • Cost Savings Key Driver For Recent Project Sanctioning
    Unit Development Costs & Unit Operating Costs USD/boe (LHS) & Operational Expenditure GBPbn (RHS)
    e = BMI estimate. Source: Oil & Gas UK, BMI

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