Shell spend hike raises North Sea sights but 'no new boom'


Darius Snieckus
OGJ Online

LONDON�The UK North Sea's slow-rolling recovery from the lowest activity levels in its history was today given a further shot in the arm by news from Shell Exploration & Production PLC that it plans to inject some $1.2 billion in to as many as half a dozen new developments in the province over the coming year.

On top of an increased capital outlay�up 50% on this year's "original plan" and a 20% hike on its spend for 1999�the oil major added it would be expanding investment in its exploration drilling and seismic programs by as much as $300 million over the next 5 years.

Shell's Outer Moray Firth Goldeneye development and the five-accumulation cluster in the East Shetland basin known as Penguins, which together call for a lion's share $900 million of new investment to reach production, top the list of potential new fields tipped to profit from the company's capex boost.

The other developments slated for new funds are the central North Sea fields dubbed Mandarin and Goosander, as well as two further prospects "which are not being identified at this time for reasons of commercial confidentiality."

Shell Expro Managing Director Malcolm Brinded suggested that the overall increased spend "reflect[ed] a number of projects that still have some tricky hurdles to cross, projects that have been around for a long time and hard to commercialize."

"We still have to get the right technical solutions, and the right commercial agreements in place, and the [government] approvals in the next 12 months or so," he acknowledged, noting that the "challenges of this type of project really do highlight the challenge that the North Sea now has."

Though Brinded declined to detail the exact breakdown of his company's announced spend, he said near-field developments, high pressure, high temperature (HPHT) prospects and southern North Sea gas developments were among its targetted areas.

Illustrating Shell's "confidence" in the part gas will play in its future production plans, over $200 million in capex, he said, would be dedicated to the mature southern North Sea gas basin over the next year.

Fields of the future

Though Goldeneye and Penguins are classed by Shell as "relatively large," Brinded said further "evaluation and appraisal and agreement as to the scale and scope of any development" would be needed before putting hard numbers to estimated reserves for the two�though Penguins, discovered 25 years ago�is said to hold in the range of 50-100 million boe.

"We are certainly looking for a development that will de-risk [Penguins]," he added, "and will enable a bit of incrementalism in terms of understanding reservoir performance. It is in an area that has proved extremely difficult to unlock."

Brinded said he was "optimistic" that Shell's Goldeneye field partners and the UK Department of Trade & Industry would have a development plan before them�likely to be a jacket-based full wellstream tieback�in the "next period."

That Shell expects to double its spend on seismic surveys, along with enhanced investment in exploration drilling, was, according to Brinded, " the best indicator of [his company's] confidence" in the future of the UK North Sea, though he emphasized the figure of $300 million "wasn't a firm promise because it depended on results".

"Advances in technology and greater well engineering efficiency are leading to improved international competitiveness for exploration funding," he said. "And they are creating the opportunity to realize further value from the mature North Sea basin. We have to compete globally for investment, and the increase in expenditure is certainly a mark of confidence in the North Sea."

Shell's decision to unlock its capex coffers to the UK North Sea, Brinded suggested, was closely aligned to Royal Dutch/ Shell's "strategy of selective investment globally." "Maintaining capital discipline has been a keynote for Shell: these increases have been won by the UK in the face of global competition and reflect a lot of very hard work to improve UK sector competitiveness."

At 50%, the percentage boost to Shell Expro's exploration spend, Brinded stressed, was a "bigger increase than Shell will be making globally," and showed the UK had "moved itself forward as one of the prime areas for investment" at the oil company.

Despite Shell's higher E&D spend building on BP's recent announcement that it would be investing some $900 million on its North Sea developments over the next year, and a similar amount in 2001, Brinded cautioned against over-optimism. "This is not a 'new boom'," he said, "but it does show confidence in sustaining the UK sector and that's a tribute to the improvements made by the industry in recent years."

Shearwater first flow

The announcement today of Shell's upcoming spending spree coincided with the inauguration of its "landmark" Shearwater field, one of three pioneering HPHT developments�along with Texaco Erskine and TotalFinaElf 's giant Elgin-Franklin development�in the Central Graben Area of the central North Sea.

Shearwater, scheduled to start up closely in time with its official opening, is thought to hold some 24 billion cu m of gas and 159 million bbl of condensate. From first flow Shell anticipates the development will ramp up to peak production of around 425 million cu ft of gas per day and some 90,000 bbl of condensate.

Via the Shell-operated 460 km SEAL gas trunkline, Brinded said Shearwater "would open up the whole central North Sea area in terms of connection to the south-east of England for gas, both for Shearwater as well as many other central North Sea field in years to come." He added that the field also unlocked the region's HPHT play, which he believes to "almost certainly the most important remaining play in the UK North Sea."

The development of Shearwater, like its HPHT neighbors, has entailed handling extreme pressures and temperatures, giving it especial significance to the offshore industry as the field demanded the invention of technology which, said Brinded, "frankly we did not know how to develop 5 years ago."

Shearwater, as "one of the last large UK North Sea platforms," would mark the transition in the UK sector "from one era to the next."

"We don't have plans for future Shearwaters, but there is plenty of oil and gas left in the North Sea�and plenty of activity ongoing in an industry," Brinded added. To "keep [the UK North Sea] fit in middle age" our industry will have to "make the most of our existing fields, target additional drilling, tie back subsea satellite developments in to existing infrastructure, and continue to grow the gas market in the southern North Sea."

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