Shell is closing in on final investment decisions (FIDs) for several North Sea projects as the energy giant’s UK business continues to impress the top brass in The Hague.
The Anglo-Dutch major is investing $700-800 million in the UK Continental Shelf annually and Steve Phimister is confident this level of outlay will be sustained for the next few years.
Mr Phimister, vice-president of Shell’s UK upstream business, highlighted the company’s ambitious drilling plans for the basin. Shell remains in the hunt for “bolt-on” acquisitions and farm ins for fields within reach of its hubs in the central North Sea.
Mr Phimister is also encouraged by the steady progress being made on the projects Shell sanctioned last year.
They’re “busy folk” at Shell UK and their success hasn’t gone under the radar. Chief financial officer Jessica Uhl labelled the division a “source of inspiration” for the rest of the group in November.
And in June chief executive Ben van Beurden vowed to keep investing billions of dollars in the years to come in what he termed a “very high-quality business”.
Shell UK’s crusade for operational excellence has played a crucial role in earning those rave reviews and Mr Phimister has no intention of easing off the throttle.
He said: “In the last four to five years we’ve added 50% to production efficiency. “That puts us in line with the average in the basin.
“There is more to do to get to the top quartile, but we are one of the big movers in unit operating costs.
“We’ve taken at least 60% out of those, so from an operational excellence perspective I think we are in good shape.
“It’s really important for this basin to demonstrate cost efficiency and competitiveness.” FIDs provide perhaps the most concrete example of the group’s backing for the UK North Sea and “a couple more” are on the cards in the next 12 months.
The first scheme likely to come “out of the traps” focuses on the Pierce
field in the central North Sea, 165 miles east of Aberdeen.
Mr Phimister said the project would be akin to a “mini-Brent depressurisation”.
The depressurisation of the huge Brent field in the 1990s meant it could produce gas rather than oil. Pierce, served by Bluewater’s Haewene Brim vessel, is an oil producing system, with all produced gas compressed and dried for reinjection.
Shell will sanction a “blowdown” on Pierce, allowing the company to extract the reservoir’s gas cap.
New gas handling capacity will be built into the topsides on Haewene Brim as part of the project.
Mr Phimister said he couldn’t be more exact on the FID timing because of the need to “optimise” oil and gas production.
Deciding when to cease oil production and go into depressurisation is a tricky call, but one he expects Shell to make “in the not too distant future”.
The Jackdaw project is “in really good shape” and an FID is possible as early as mid-2020.
Shell intends to develop the highpressure, high-temperature (HPHT) field with the construction of an unmanned wellhead platform.
The field will be tied back to the Shearwater installation in the central North Sea.
Italy’s Rosetti Marino and Norwegian firm Kvaerner are competing in a dual front end engineering design contest for Jackdaw.
Mr Phimister is also “really keen on” the Siccar-Point-operated, 800-million barrel Cambo project, north-west of Shetland.
Last year, Shell bought a 30% stake in the licences containing Cambo, where a well test was successfully carried out last year. “Cambo looks very promising,” Mr Phimister said.
“It’s a bit tougher, west of Shetland, with its ocean conditions but, ideally, we’ll get FID next year, as well.
“There’s still a bit of work to do there to make sure the project is entirely robust and investible, but we’re really looking to get it off the ground.”
Following this interview, Siccar Point and Shell handed the front end design contract for the Cambo floating production vessel to Sembcorp Marine.
Shell is also a partner in BP’s Clair field, also west of Shetland. An FID on a third development phase, called Clair South, is slated for 2021.
Offering an update on the projects sanctioned last year, Mr Phimister said Penguins was still on course for first oil in 2022.
Construction of the cylindrical FPSO in China is progressing, with the hull set for completion later this year.
Shell hopes to welcome the vessel to UK waters in 2021 to allow time for hook-up and commissioning.
Contracts for transporting the FPSO have not yet been awarded. Shell and partners also gave the thumbs up for the development of the Arran and Fram fields, both of which will be tied back to the Shearwater platform in the central North Sea.
Shell agreed to modify Shearwater to handle production from both fields and to install a 23-mile-long pipeline linking the installation to the Fulmar Gas Line.
Subsea 7 was chosen for the “re-plumb” project and work is “progressing very well”, according to Mr Phimister.
He said: “We have a very competitive hub in Shearwater in terms of tariffs, availability and reliability. “
We are reusing a lot of subsea infrastructure which allows us to reduce the amount of new equipment required for Fram and Arran. That adds a lot of value to gas molecules in that basin.”
Fram production is scheduled to get under way next year, with Arran coming on stream the following year.
A bypass of Repsol Sinopec’s Fulmar platform, which stopped producing last year, has been completed to give the Gannet field a long-term export route.
Mr Phimister said: “All the projects sanctioned last year are going well, touch wood. “They will help considerably to increase the production profile of our operated portfolio in the coming year or two. We will continue our growth journey.”
On the drilling front, Shell is targeting between 25 and 30 operated wells over the next three years.
And the firm will continue to “compete strongly” for exploration acreage in current and future licensing rounds.
“We’re a big believer in organic growth west of Shetland and in the central North Sea.
“We will remain active in exploration, so there’s a lot happening. It’s very exciting and we’re investing in a material way.
“We do have the backing of The Hague to continue this investment profile.
“Obviously, we have to deliver. Delivery gives us the credibility to attract investment in the UK, and we want to continue to do that to play our part in MER UK.”
On the drilling front, Shell expects to have three mobile units in the UK North Sea at the start of next year working on a mixture of exploration and development wells.
Diamond Offshore’s Ocean Endeavour rig is now drilling at the Penguins field and will subsequently be used for wells on Pierce.
In 2021, it will return to Penguins to do completions.
Ocean Valiant has been booked in for some work at Gannet and Arran – and exploration wells around Shell’s central North Sea installations.
Early next year, a dedicated HP-HT jack-up will go to work on Shearwater and Jackdaw, as well as drilling some new exploration wells.
One of those exploration wells could focus on the Edinburgh prospect, which straddles the boundary between the UK and Norwegian continental shelves and could contain upwards of 200 million barrels.
Shell has been on the acquisition trail this year, securing 70% and the operatorship of the southern North Sea licence containing the 100-million-barrel Pensacola prospect from Cluff Natural Resources.
And Shell took up the option of a 50% interest in the 90-millionbarrel Selene prospect with Cluff. Mr Phimister said Shell would continue to work on deals of that nature and that the company could offer a “lot of capability and competence” to smaller players.
He said the southern basin, where Shell’s assets on the UK and Dutch sides of the boundary are run as a single, integrated unit, was always on Shell’s mind.
“These sorts of deals make so much sense,” he said. “We can costeffectively develop these fields. Most end up being tiebacks in the central and southern North Sea.
“We’ve taken 45% out of the cost of these developments in the last three years. “That’s why things that were not economic a decade ago can be developed now.
“With smart subsea developments and drilling we can develop small pools of 10-20 million barrels. They become economically viable and we can do them swiftly.”
Asked about future farm-ins, Mr Phimister said that a “number of things” were “going on” in the central North Sea, including “active conversations”, but couldn’t elaborate.
Mr Phimister also spoke of the need for a “mature debate” around the energy transition that acknowledges the vital role the oil and gas industry can play in the drive to net-zero by 2050.
Mr Phimister is a member of the task force assembled to draw up a roadmap showing what needs to be done and by when to deliver the industry’s revamped Vision 2035 scenario.
Industry wants to fulfil as much UK oil and gas demand as possible through domestic production and help boost supply chain revenues at home, abroad and from other sectors, while supporting the low-carbon push.
He is confident the vision and the industry’s push to “maximise economic recovery” from the North Sea are compatible with the UK Government’s aim to reach netzero emissions by 2050.
He said: “We need more energy and to transfer to a low-carbon future. That’s a given. “I do not hear a lot of argument around that.
We also have to recognise it’s a transition. These are complex issues that will take creativity and tenacity to resolve.
“The first thing we need to have is a mature debate which recognises that oil and gas will have some role in UK and global energy systems for some time.
“The oil and gas industry needs to be part of the solution. I think we already are and will be.
“This industry has demonstrated for many years that it has skill, capability and innovation.
“We know how to solve problems. We have a phenomenal supply chain and will apply ourselves to this.”
Shell has gained a reputation for being one of the most progressive in the push by oil and gas majors to become broader energy firms. The company has been bolder than many of its peers in the face of pressure from activist investors.
It has committed to addressing emissions not only from its operations, but also from the consumption of its productions by others.
Shell’s “ambition” is to halve
its carbon footprint by 2050 and, with that in mind, set some short-term targets to be achieved by 2021.
Mr Phimister said reducing emissions from companies’ operations was the right starting point.
Shell’s UK business has cut 300,000 tonnes worth of greenhouse gas (GHG) discharges from its activities in the last few years by reducing flaring and venting of fugitive emissions, and improving efficiencies.
The Vision 2035 roadmap will be published this week and Mr Phimister promised it would contain “robust” commitments to tackling the oil and gas industry’s GHG emissions quickly.