Shell to return to UK North Sea with expansion of oil field

Royal Dutch Shell gave the green light on Monday for an expansion of the Penguins oil and gas field in the UK North Sea, its first major new project in the ageing basin in six years.

Shell said the development, which includes the construction of a floating production, storage and offloading (FPSO) vessel, reaffirmed the Anglo-Dutch company’s commitment to the region after it sold around half of its assets there in 2017.

“Penguins demonstrates the importance of Royal Dutch Shell’s North Sea assets to the firm’s upstream portfolio,” said Andy Brown, director of Shell’s oil and gas production, known as Upstream.

The FPSO vessel is expected to produce up to 45,000 barrels of oil equivalent a day.

Shell shares were 0.3% lower in midmorning trading.

The Penguins redevelopment is the first major project Shell has announced since 2012, when it made a final investment decision for the Fram field in the central North Sea.

The project will generate a profit even with oil prices below $40 a barrel, Shell said, making it competitive against other offshore basins and most of North America’s shale production.

“We struggled to make it economic until the last couple of years when we closely worked with supply to redefine and redesign the development to reduce costs,” Steve Phimister, head of Shell Upstream in the UK and Ireland, said.

Shell is expected to decide on a number of other projects in the central North Sea in the next year or two, he said.

Shell gave no details on the cost of the project, which Bernstein analysts last September said would be up to $2.5bn.

Production in the UK North Sea has steadily declined since the late 1990s, but has seen a modest recovery in recent years thanks to a number of new projects, including the BP-operated Quad 204 field in the western Shetlands in 2017, in which Shell holds a 55% stake.

Operators have cut operating costs as a drop in oil prices since 2014 forced companies to become more efficient and service providers to slash costs.

Shell’s production is about 135,000 barrels a day in the UK North Sea after completing the sale of a $3bn package of assets to Chrysaor in November 2017, Phimister said.