Shell spending hike bolsters UK North Sea outlook

Sept. 11, 2000
The UK North Sea's slow-rolling recovery from the lowest activity levels in its history was given a further shot in the arm last week by news from Shell Exploration & Production PLC that it plans to inject some $1.2 billion into as many as half a dozen new developments in the province over the coming year.

The UK North Sea's slow-rolling recovery from the lowest activity levels in its history was given a further shot in the arm last week by news from Shell Exploration & Production PLC that it plans to inject some $1.2 billion into 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 spending for 1999-Shell added that 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 boost in capital spending.

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 spending "reflect[ed] a number of projects that still have some tricky hurdles to cross, projects that have been around for a long time and [have been] 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."

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

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

Fields of the future

Although 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 the Penguins cluster, discovered 25 years ago-is said to hold 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 is "optimistic" that Shell's Goldeneye field partners and the UK Department of Trade and Industry would have a development plan-likely to be a jacket-based, full-wellstream tieback-ready in the "next period."

That Shell expects to double its spending 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, although he emphasized the figure of $300 million "wasn't a firm promise because it depended on results."

At 50%, the percentage boost to Shell Expro's exploration spending, 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 company.

Despite Shell's E&D spending increase building on BP's recent announcement that it would be investing some $900 million in 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 of Shell's upcoming spending spree coincided with the inauguration of its "landmark" Shearwater field, one of three pioneering HPHT developments-along with Texaco Inc.'s Erskine and TotalFinaElf SA'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. Shell anticipates the development will ramp up to peak production of around 425 MMcfd of gas and some 90,000 b/d 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 southeast of England for gas, both for Shearwater as well as many other central North Sea fields in years to come." He added that the field also unlocked the region's HPHT play, which he believes to be "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 special significance to the offshore industry, as the field demanded the invention of technology that, 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 into existing infrastructure, and continue to grow the gas market in the southern North Sea."