Page 11 - Euroil Week 14 2020

EurOil PERFORMANCE EurOil
Norwegian production more resilient to low prices than UK’s: Westwood
NORWAY
The vast majority of Norwegian production still turns a profit.
NORWEGIAN oil and gas production is more resilient to low oil prices than the UK’s, Aber- deen-based Westwood Global Energy wrote in a research note last week.
If oil remains below $27 per barrel, UK pro- duction is not generating enough revenue to cover both operating costs and planned capital expenditure in 2020, whereas the Norwegian off- shore can achieve this even with oil at below $20 per barrel, the consultancy stated.
The UK now boasts operating costs of well under $20 per barrel, as operators have worked hard since the 2014 price crash to make spending more efficient. But some production facilities still have costs above this threshold and some early shutdowns are likely, according to Westwood.
“On the whole, these are ultra-mature instal- lations with lower production levels and these will need a more stringent review to reduce costs for the remainder of the year,” the consultancy said.
It estimates that around 11% of expected UK production in 2020 will come from assets with operating costs exceeding $20 per barrel of oil equivalent (boe), and 4% from those with costs above $30.
The picture is brighter in Norway, where less than 2% of production is from assets with costs greater than $20 per boe, and only 0.6% from assets with costs exceeding $30.
The downturn has also affected investment. Some 12 UK fields holding a combined 320mn boe of reserves were expected to secure a final investment decision (FID) this year, Westwood estimates. In the case of seven of them, contain- ing 264mn boe, this decision has been deferred or removed. The largest deferred project is Cambo,
whose developers are Siccar Point Energy and Royal Dutch Shell. Its sanctioning is no longer anticipated until the second half of 2021.
In Norway, only three projects had been scheduled to get the green light in 2020, but they are significant, targeting some 269mn boe of reserves between them. Now only two FIDs are expected, as a decision on the DNO-operated Brasse field containing 73mn boe has been post- poned until 2021.
As in the previous downturns, exploration activity will be hardest hit, according to West- wood. The consultancy estimated at the start of the year that 66 exploration and 17 appraisal wells were planned in the UK and Norway in 2020. The number in the UK has fallen to 14, of which five will likely be deferred. Some 32 are now slated off Norway, but Westwood expects 17 to be delayed. Many appraisal wells will also be postponed to 2021, it said.
“The current [coronavirus] COVID-19 induced crisis is perhaps the greatest challenge yet to face our industry,” Westwood concluded.
While, unlike the UK, Norway will be able to cover its costs and spending with revenues from production this year, its government will see tax revenues plummet.
“Deep spending cuts are inevitable and the focus will be on delaying and deferring capital projects, as there is little room for cuts in an already squeezed supply chain,” Westwood said. “It will undoubtedly hurt the industry and has- ten abandonment for some assets. There are, however, some notable companies with low operating costs who may yet find opportunity in adversity.” ™
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