Page 11 - Euroil Week 12 2020

EurOil PERFORMANCE EurOil
North Sea entering unprecedented phase following price slump
NORTH SEA
In the longer term, operators will need
to invest to boost production and reduce unit costs.
THE North Sea oil industry, despite having made it through several market downturns in its 50-year history, is now entering “unchartered waters”, Edinburgh-based Wood Mackenzie has warned.
The sector has managed to cut its costs sub- stantially since the 2014 oil price rout. Thanks to these efforts, 95% of current North Sea produc- tion can still turn a profit at $30 per barrel oil, the consultancy said in a research note on March 23.
“But close to a quarter of fields will run at a loss in this price environment,” Wood Mackenzie analyst Neivan Boroujerdi said. “The major con- cern here is not volumes. Early shut-ins would accelerate $20bn in decommissioning spend.”
In the short term, operators can protect their balance sheets by cutting operational expendi- ture. But over the longer term, they need invest- ment to increase production and reduce unit costs, Wood Mackenzie said.
“If the industry goes into harvest mode, a premature end is inevitable,” Wood Mackenzie warned.
“Most FIDs for 2020 are off the table. At cur- rent prices, nearly two-thirds of development
spend could be wiped from our forecast over the next five years,” Boroujerdi continued. “Annual investment in the UK could fall below $1bn as early as 2024. The threat of stranded assets is real – we estimate nearly 6bn barrels of econom- ically viable resources could be left in the ground, not to mention a further 11bn of contingent resources.”
A number of major offshore players operating in the UK and Norway have announced 20-30% cuts to capital expenditure during recent weeks, as well as significant reduction targets for operat- ing spending. Norwegian state oil giant Equinor announced such cuts this week, as did Sweden’s Lundin Petroleum. Lundin said on March 23 it had delayed all its non-committed projects and was looking to shave $170mn off its spending budget for 2020.
Aker BP, a Norwegian player that is 30%- owned by BP, has taken similar action. It announced on March 23 it had reined in its capital expenditure plan for this year by 20% to $1.2bn. It has also put on hold all its unsanc- tioned projects, including the Hod redevelop- ment scheme. ™
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