The first major contract on Premier Oil’s Sea Lion field offshore the Falkland Islands has been awarded following completion of pre-front end engineering and design (FEED) on the project.
Netherlands headquartered floating production firm SBM Offshore has been awarded an 18 month contract for FEED on the floating production, storage and offloading vessel for the 450m deep water field, which is expected to be a conversion project.
The announcement comes as project partner Rockhopper Exploration revealed details of the now expanded scope project, which is now targeted for final investment decision mid-2017 (previously 2016) and first oil in 2020. It also follows recent exploration success near Sea Lion, which could mean reduced life of field operational costs for the first phase, suggests Rockhopper.
Premier Oil's shares were also suspended this morning pending its announcement later in the day it was making a $120 million offer for Eon's UK North Sea assets. Eon operates the Huntington field, as some smaller fields, and has stakes in a number of non-operated fields.
Phase 1a of the field, 220km north of the Falkland Islands, had been due to tap some 160 MMbbl. That’s now been increased to 220 MMbbl. Peak production has also been increased from 60,000 to 85,000 b/d, with an increase in well count from 14 to 18, with 13 drilled pre-first oil. Meanwhile, capital costs have remained fixed at US$1.8 billion, says Rockhopper. This is equivalent to about $8/bbl and amounts to a 30% cost saving, says Rockhopper, with further cost reductions expected.
The company says preferred contractors have been selected for the provision of the various subsea system facilities with subsea FEED contract awards covering subsea umbilicals, risers and flowlines, subsea production system and flexibles expected during Q1 2016. A draft field development plan has also been submitted to the Falkland Island Government includes increasing field life from 15 to 20 years.
According to Rockhopper, “significant technical and cost improvements and efficiencies have been identified to materially enhance overall project economics.”
Analysts at FirstEnergy Global noted the announcement, but said Premier would be unlikely to sanction the project until its North Sea Catcher project is on stream and the oil price has recovered, pushing first oil more likely intro 2021 or 2022. Premier Oil is also working towards first oil and its delayed Solan project, west of Shetland, with first oil now targeted in February due to poor weather in the North Sea.
Rockhopper CEO Sam Moody says: “Today’s announcement provides the Sea Lion project with significant additional technical momentum, whilst fully aligning the partners economically. The huge improvements to the project, combined with the award of the FPSO FEED and finalization of the commercial terms with Premier allows us to keep moving the Sea Lion project towards a sanction point in mid-2017, despite the low oil price environment.
“The recent discoveries in the Isobel Elaine complex could open a third area of development in the basin and this on top of the already proven resources of Phase 2 should have a very significant impact on the life of field opex costs for Phase 1a.”
It had been expected phase two of the project would see a tension leg platform (TLP) deployed, taking in the Zebedee discovery, with an FPSO then used for a third phase, targeting Elaine/Isobel Deep, but SBM Offshore said today future phases would likely use FPSOs.
Originally, Premier Oil was targeting a large FPSO development for Sea Lion. In 2014, it then started working on a TLP design before reverting to a scaled-back, leased 50-60,000 b/d capacity FPSO, initially at a cost of under $2 billion. It was targeting 160 MMbbl over 15 years, with final investment decision in 2016 and first oil in 2019.
Under the commercial terms, Rockhopper will have a $48 million exploration carry for the 2015/16 drilling campaign and contribute 40% of pre-sanction costs, currently estimated at $50 million gross ($20 million net to Rockhopper) during 2016. Rockhopper will retain a $337 million development carry for Phase 1a; and a further $337 million development carry is deferred to the subsequent phase of development.
Industry investment market commentator Malcolm Graham-Wood said: "I have a sneaky feeling that this could be wonderfully judged, producing this oil in 2020 might be perfect timing. Also the nature of the project is likely to appeal to a number of international players who might have been on the sidelines up until now, the better political situation in Argentina helps too. "820 MM+ barrels of recoverable oil over 20 years and on decent economics is becoming highly compelling."
Read more
Initial phase FPSO plan for Sea Lion
Premier proves pay at Isobel Deep
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