Offshore staff
LONDON – Westwood Global Energy Group has analyzed what the current oil price might mean for the UK and Norway upstream sectors.
Assuming the price remains less than $27/bbl for the remainder of the year, production across the UK continental shelf will not generate sufficient revenue to cover both operating costs and planned capex for 2020, according to Westwood senior analyst Yvonne Telford and technical manager, NW Europe Alyson Harding.
Norway is less exposed, and can still cover its operating and capital costs even if oil slips and stays less than $20/bbl, although the government will see its tax revenues plummet.
In the short term, production is unlikely to be impacted significantly, although operators are looking to minimize offshore activities that put staff at risk of greater exposure to COVID-19, retaining where possible the minimum level required for core operations.
Some companies are also reviewing projects and are considering deferring non-essential work until the oil price recovers.
After the 2014 oil price collapse the UK sector combined to lower operating costs typically less than $20/bbl. But according to Westwood, some older production facilities still incur higher costs, so their cessation of production date could be brought forward.
The consultant estimates that 11% of UK forecast 2020 production comes from offshore assets with operating costs >$20/bbl and 4% from assets with opex/boe >$30/boe.
In Norway, it adds, less than 2% of production is from hubs with opex/boe costs >$20/bbl while 0.6% is from assets with opex/boe costs >$30/bbl.
At the start of this year, 12 UK offshore fields with collectively 320 MMboe of reserves looked set to go forward for development. But some operators have already announced delays to projects, with 264 MMboe now deferred or removed.
The largest deferral is Cambo west of Shetland: here project sanction has been put back to 2H 2021. Westwood’s analysts only foresee two developments involving five fields that could still be sanctioned in 2020.
Offshore Norway, only three projects were expected to be sanctioned, with associated reserves of 269 MMboe. However, DNO’s Brasse field development in the North Sea (73 MMboe) will likely be put on hold until 2021.
As for drilling, Westwood identified 66 exploration and 17 appraisal wells at the start of the year that could be drilled in UK and Norwegian waters. Now, however, wells are being deferred to limit exposure of staff to COVID-19, and because of budget reviews and discussions between operators and regulatory bodies.
Two UK offshore wells have been completed this year, and according to the Westwood duo, three others have been approved to drill while four more have firm commitments. A further five wells look set to be deferred to next year.
In Norway, six exploration wells have been drilled to date and two are currently in progress. A further six have permits to drill while another 18 wells are still in the planning phase.
Westwood expects a total of 17 Norwegian exploration wells to be deferred, with the same applying to some planned appraisal drilling.
04/03/2020
