Analysis: UK North Sea’s oil and gas future darkens after Shell’s Cambo exit

The Royal Dutch Shell brand is seen at a Shell petrol station in London, Britain, January 31, 2008. REUTERS/Toby Melville

LONDON, Dec 3 (Reuters) – Up till just a few days in the past, the management of British North Sea producer Siccar Level was negotiating the sale of a stake within the promising Cambo oil growth to a different non-public equity-backed firm, NEO, sources informed Reuters.

However on Thursday Royal Dutch Shell (RDSa.L), Siccar Level’s associate within the undertaking, pulled its help for Cambo amid a wider public debate about the way forward for fossil fuels growth within the North Sea. The cope with NEO, in addition to the way forward for the 1.9 billion pound ($2.51 billion) undertaking, had been thrown into disarray, in response to three business sources. learn extra

Shell’s determination sends a unfavorable sign to different corporations, buyers and bankers who’re desirous about placing cash into the ageing basin, together with by shopping for belongings from majors, business sources informed Reuters. learn extra

The withdrawal from Cambo got here a number of weeks after a British regulator rejected Shell’s plans to develop one other North Sea gasfield, Jackdaw, whose future additionally stays doubtful until Shell comes up with a revised plan that passes muster. learn extra

In its announcement on Thursday, Shell mentioned Cambo was not economically viable. However firm sources mentioned the choice was additionally influenced by local weather protests in opposition to creating new oil and fuel assets within the North Sea, in addition to public opposition to Cambo by Scotland’s First Minister Nicola Sturgeon.

“It is an financial determination however that is to not say that the exterior surroundings does not influence the choice. It is about enterprise threat,” one Shell supply mentioned.

Siccar Level and Shell have delayed the choice on whether or not to develop Cambo a number of instances in recent times, most not too long ago as a result of coronavirus pandemic. Nevertheless, Siccar Level had been near a cope with NEO, sources near the matter mentioned, though it was unclear what measurement stake was being mentioned or what the worth of the deal would have been.

NEO declined to remark. Siccar Level declined to remark when requested about talks with NEO.

‘TOXIC’ CLIMATE

Oil corporations together with Shell and BP (BP.L) have been main buyers within the North Sea for many years. Regardless of scaling again their presence within the basin in recent times, they nonetheless contemplate it as central to their future in oil and fuel in addition to offshore wind operations.

Whereas internet hosting the COP26 local weather summit final month, Britain determined to not be a part of an alliance of nations vowing to cease new oil and fuel initiatives on their territory. learn extra

Rising stress from buyers, governments and local weather activists, nevertheless, has led oil majors to reduce spending on oil and fuel initiatives and improve investments in renewable power as a way to slash greenhouse fuel emissions.

And if the UK authorities fails to clarify its help for funding within the sector after Shell’s transfer, output from the mature North Sea oil and fuel basin may fall extra quickly than beforehand anticipated, business sources informed Reuters.

“In the meanwhile it is poisonous,” mentioned one North Sea oil and fuel supply, talking about how Shell’s determination has impacted the funding local weather within the British North Sea.

Oil and fuel fields require common funding in drilling new wells and fields as a way to offset the pure depletion in different fields. The extra mature the fields, the extra funding is required.

British oil and fuel manufacturing at about 1.5 million barrels of oil equal per day (boepd), or about 1% of worldwide oil demand, has fallen from a peak of round 4.4 million boe/d in 1999.

Whereas investments in wells close to current fields are anticipated to proceed, corporations will now hesitate earlier than making selections on massive capital initiatives.

“For the UK North Sea it’s a bit miserable,” mentioned one supply.

SHELL’S EXIT WELCOMED

Local weather campaigners and a few buyers welcomed Shell’s exit from Cambo, after activists pointed to a report by the Worldwide Power Company (IEA) saying that no new oil and fuel initiatives needs to be developed as a way to limit world warming to 1.5 levels Celsius.

Siccar Level and a few politicians have mentioned that halting new oil and fuel growth within the North Sea may depart Britain extra reliant on higher-emissions imported gas. learn extra

A spokesperson for the federal government mentioned 75% of the UK’s major power demand comes from oil and fuel at current and the choice on Cambo “is a industrial determination that has been taken independently by Shell.”

In the meantime, British courts have more and more develop into an area for local weather activists attempting to power an finish to grease and fuel manufacturing in Britain.

A Scottish court docket handed BP (BP.L) a win over Greenpeace in October in relation to a North Sea oilfield. learn extra However one other case in opposition to the federal government and its Oil and Fuel Authority is getting a judicial listening to at a Excessive Courtroom in London beginning on Dec. 8 to find out whether or not tax breaks for oil and fuel producers are authorized.

Britain’s treasury obtained round 248 million kilos ($329 million) from oil and fuel manufacturing within the tax yr 2020/21, a drop of 71% on the earlier yr, in response to official knowledge, on account of a plunge in oil and fuel costs throughout the pandemic.

This compares with 400 million kilos which the federal government paid oil and fuel producers in 2016/17 on account of tax preparations when the oil worth is low.

($1 = 0.7566 kilos)

Reporting by Shadia Nasralla and Ron Bousso; Enhancing by Susan Fenton

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