Weak demand for services in the oil sector is helping operator Premier Oil to reduce costs on its Vette and Sea Lion projects, the firm said this morning.
While the now expected prolonged low oil prices could put pressure on future projects, as well as delaying current projects, weakness in demand for oilfield services has meant operators have been able to bear down costs.
Both Vette and Sea Lion were taken back to the drawing board after development options for both were deemed too expensive, following the drop in oil prices from a US$110/bbl high in summer 2014 to today’s ca.$50/bbl.
Premier Oil had been considering an FPSO development for Sea Lion, a major find in offshore the Falkland Islands, but then opted for a tension leg platform, before reverting to a smaller, phased FPSO development.
On the Norwegian North Sea Vette field (formerly called Bream), Premier had also been considering a new-build FPSO, in this case a Sevan-design cylindrical FPSO. It has been assessing other options and says investment decisions are now due to be made in 2016, on Vette and Sea Lion.
The firm, which is due to bring its West of Shetland Solan development on stream later this year, says: “The weak order backlog in many segments of the service sector provides an opportunity to reduce costs on our unsanctioned projects, notably Vette in Norway and Sea Lion in the Falkland Islands.
“In this respect, re-engagement with the supply chain on both projects has been encouraging and the teams continue to progress the projects towards investment decisions in 2016.” But, the firm cautioned: “These decisions will depend upon the oil price outlook at the time, cost reductions secured as well as our ability to fund the projects without putting our balance sheet at risk.”
Premier Oil is also preparing itself for a period of what it called “sustained commodity price weakness.” CEO Tony Durrant said: “Like the rest of the industry, we need to be prepared for a period of sustained commodity price weakness. The extent to which we can invest in new projects for further growth and consider other forms of shareholder return will be determined by the oil price and the level to which we can capture further cost savings.”
In the short term, the firm is looking forward to bringing its North Sea west of Shetland Solan normally unmanned platform development on steam, due Q4 2015, followed by its Catcher FPSO development in 2017.
Durrant added: “With Solan on-stream later this year and Catcher in 2017, we expect both growing production and reduced debt levels. With the optionality in our portfolio, we are well placed for growth in a stronger oil price environment.”
Premier’s production averaged 60,400 boe/d, compared to 64,900 in Hi 2014. Full year guidance is maintained at 55,000 boe/d.
Premier is also focusing on building its portfolio in Ceará Basin, Brazil and Sureste Basin, Mexico, where it was awarded, together with its joint venture partners Talos Energy (operator) and Sierra Oil & Gas, Blocks 2 and 7 in the country’s Round 1. Premier says the Blocks contain numerous leads in established and emerging plays, located in the shallow water Sureste Basin, “a proven and prolific hydrocarbon province in the Gulf of Mexico.“
Blocks 2 and 7 contain Tertiary clastic plays, typical of the Salinas sub-basin. The forward plan is to acquire, evaluate and reprocess 3D seismic data with a view to firming up drilling locations towards the end of 2016.
Images: Top, the Solan field during installation operations. Middle, the Sevan Voyageur, a Sevan-design cylindrical FPSO.
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