Shell OKs First UK North Sea Project in Six Years

 

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 last year.

 

"Penguins demonstrates the importance of Shell's North Sea assets to the company's upstream portfolio," said Andy Brown, director of Shell's oil and gas production, known as upstream.

 

The FPSO is expected to produce up to 45,000 barrels of oil equivalent per day (boe/d).

 

Shell shares were 0.3 percent lower at 1145 GMT.

 

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 profits even with oil prices below $40 a barrel, Shell said in a statement, making it competitive against other offshore basins and most of North America's shale production.

 

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

 

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 last year, in which Shell holds a 55 percent stake.

 

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