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North Sea oil's rock hoppers

Shell is happy to give the Penguins project a helping hand

There is yet more evidence that the mature regions of the North Sea oil province are exhibiting serious staying power. Shell has given the go-ahead for the Penguins field redevelopment plan in the UK North Sea and Norway has awarded a record 75 licenses to explore near existing infrastructure.

The Penguins project has been on the cards for some time, but operator Shell and ExxonMobil, which each have 50% stakes, announced a positive final investment decision (FID) on 15 January, making it the Shell's first new manned installation in the northern North Sea for nearly three decades.

Shell said the new project will break even at less than $40 a barrel, a figure which reflects improving technology, government incentives and a sharp decline in costs in the North Sea industry, since 2014.

Penguins is a small group of fields, lying in a water depth of about 165m, some 150 miles northeast of the Shetland Islands, which was discovered in 1974 and first developed in 2002.

Oil and gas is currently processed using four drill centres tied back to the Brent Charlie platform. However, with Brent Charlie to stop production shortly, an alternative channel was needed and is being provided by a new floating production, storage and offloading vessel—output is expected to peak at around 45,000 barrels of oil equivalent a day. Fluor has been announced as the winner of the engineering, procurement and construction contract for the FPSO.

The redevelopment also entails the drilling of eight new wells, while gas will be transported via a tie-in of existing subsea facilities and additional pipeline infrastructure.

Shell has been divesting some of its maturing North Sea interests, but is clearly still ready to invest in a handful of key projects. Steve Phimister, Shell's vice president for upstream, UK and Ireland, said that having reshaped its portfolio over the last 12 months, the company now planned to increase its North Sea output through its "core production assets".

"Shell and Exxon taking FID on the Penguins redevelopment in early 2018 is very positive for the North Sea, marking the end of a cautious era during the downturn," Fiona Legate, an analyst at Wood Mackenzie, said. "This is the largest FID since Culzean in August 2015 and shows market confidence has returned."

Wood Mackenzie is expecting 14 UK FIDs to be taken in 2018. Penguins, estimated to have around 80m boe of reserves, is expected to be the second-largest.

Norway's licence push

Norway's energy ministry has awarded 75 offshore exploration licenses to Shell, Total, ConocoPhillips, Statoil and Aker BP under its annual predefined areas (APA) round for 2017.

The APA round is designed to encourage development close to existing projects, which would be too small to be economic without access to pre-built nearby infrastructure.

Of the licenses, 45 were granted for the North Sea; 22 for the Norwegian Sea to the north and eight for the Barents Sea in the Arctic region. A total of 34 companies were given stakes in various licenses, which were awarded with work-programme commitments, while 19 of the firms are to be offered operatorship for one or more concessions.

Jez Averty, Statoil's senior vice president for exploration in Norway and the UK, noted that APA rounds had proved worthwhile in the past and were important to maintaining activity on the Norwegian continental shelf. Statoil's Cape Vulture discovery in the Norwegian Sea in January 2017, whose reserves were estimated at 20m-80m barrels, was made on a block awarded a year earlier as part of the 2015 APA round.

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