By Tom MortonJanuary 17th 2018
Tom Morton

Oil and gas exploration West of Shetland is set for a major surge in 2018, with the drive to find new hydrocarbon resources at its highest level since crude oil prices began falling, according to a new report by top consultancy Wood Mackenzie. And oil and gas output is is likely to hit an eight-year peak in the UK North Sea this year, fuelled by the huge Clair Ridge and Mariner developments off Shetland, which are set to start production.

As the price of Brent Crude hit almost $70 a barrel (up from a low of $30 two years ago, down from a high of $115 in summer 2014) The Wood Mackenzie report states that drilling activity - up to 14 wells in the UK sector during 2018 - could lead to further major developments. Production is forecast to reach 1.9million barrels per day, the highest level since 2010

Fuelling confidence is the news that energy giant Shell is to go ahead with redevelopment of the Penguins oil and gas field in the North Sea. A floating production, storage and offloading (FPSO) vessel will be built to handle production from the field, the first new manned installation for Shell in the northern North Sea in almost 30 years.
The redevelopment surfs increased confidence that the oil price will stay at a workable level. Shell says the field can be sustained on “a competitive go-forward break-even price below $40 per barrel.”

“Penguins demonstrates the importance of Shell’s North Sea assets to the company’s upstream portfolio,” said Andy Brown, Shell’s Upstream Director. “It is another example of how we are unlocking development opportunities, with lower costs, in support of Shell’s transformation into a world class investment case.”

The Penguins field currently processes oil and gas using four existing drill centres tied back to the Brent Charlie platform. The redevelopment of the field, required when Brent Charlie ceases production will see an additional eight wells drilled, which will be tied back to the new FPSO vessel. Natural gas will be exported through the tie-in of existing subsea facilities and additional pipeline infrastructure.

Oil and gas output is is likely to hit an eight-year peak in the UK North Sea this year, fuelled by the huge Clair Ridge and Mariner developments off Shetland

Steve Phimister, Vice President for Upstream in the UK and Ireland said: “Shell has had a strong presence in this part of the northern North Sea for more than forty years. Having reshaped our portfolio over the last twelve months, we now plan to grow our North Sea production through our core production assets. In doing so, we will continue to work with the UK government, our partners and the regulator to maximise the economic recovery in one of Shell’s heartlands.”

The Penguins field is in 165 metres (541 feet) of water, approximately 150 miles north east of the Shetland Islands. Discovered in 1974, the field was first developed in 2002 and is a joint venture between Shell (50% and operator) and ExxonMobil (50%).

A joint venture-owned/Shell-operated Sevan 400 FPSO has been selected as the development option for the field. Oil will be transported via tanker to refineries and gas will be transported via the FLAGS pipeline to the St Fergus gas terminal in north-east Scotland.

The company said on Monday that between 300 and 400 jobs would be required to build the floating production, storage and offloading (FPSO) vessel – and once it is operational, the Penguins field installation should provide around 70 jobs.

Deirdre Michie, Chief Executive of Oil & Gas UK, said:

“This is great news and an exciting start to the new year. A global leader like Shell making a commitment on this scale demonstrates the investment potential the UK Continental Shelf still holds. It also shows the importance of the efficiency improvements our industry has delivered which have helped make redevelopment projects like this commercially attractive.

“We are hopefully entering a more positive phase for our industry in the UK with new projects on the horizon that I hope will bring a much needed boost for companies in the supply chain.”

Shetland plays a crucial role in oil and gas exploration and development both in the North Sea and the Atlantic, through the Sullom Voe oil terminal and Total’s Shetland Gas Plant, and as a supply centre. Lerwick Port Authority offers a range of facilities for exploration projects and many local companies offer specialised services to the industry, using expertise and skilled workforces developed over many decades of involvement with the offshore oil and gas industry.

Great news and an exciting start to the new year

This video illustrates many of Shetland's in-depth capabilities in the offshore oil and gas sector