Shell to Redevelop U.K. Penguins Field

Royal Dutch Shell has taken final investment decision (FID) on the redevelopment of the Penguins oil and gas field in the U.K. North Sea.

The Penguins field currently processes oil and gas using four existing drill centers tied back to the Brent Charlie platform. The redevelopment of the field, required when Brent Charlie ceases production will see an additional eight wells drilled, which will be tied back to the new FPSO vessel. Natural gas will be exported through the tie-in of existing subsea facilities and additional pipeline infrastructure.

The Penguins field is in 165 meters (541 feet) of water, approximately 150 miles north east of the Shetland Islands. Discovered in 1974, the field was first developed in 2002 and is a joint venture between Shell (50 percent and operator) and ExxonMobil (50 percent).

The decision authorizes the construction of an FPSO, the first new manned installation for Shell in the northern North Sea in almost 30 years. The FPSO is expected to have a peak production (100 percent) of about 45,000 boe/d. A joint venture-owned/Shell-operated Sevan 400 FPSO has been selected as the development option for the field. Oil will be transported via tanker to refineries and gas will be transported via the FLAGS pipeline to the St Fergus gas terminal in north-east Scotland.

Global engineering and construction company, Fluor, has been awarded the FPSO engineering, procurement and construction contract. Sevan Marine will provide the technology (under license agreement) for the circular FPSO and will provide technical support during the design phase of the project. The Penguins FPSO will be the 6th Sevan Marine designed cylindrical FPSO to be built.

Shell says the redevelopment is an attractive opportunity with a competitive go-forward break-even price below $40 per barrel. “Penguins demonstrates the importance of Shell’s North Sea assets to the company’s upstream portfolio,” said Andy Brown, Upstream Director. “It is another example of how we are unlocking development opportunities, with lower costs, in support of Shell’s transformation into a world class investment case.”

Fiona Legate, Wood Mackenzie Senior Research Analyst, commented: "Shell and Exxon taking FID on the Penguins redevelopment in early 2018 is very positive for the North Sea, marking the end of an cautious era during the downturn. The Penguins redevelopment is expected to produce around 80 mmboe via a new-build FPSO development. This is the largest FID since Culzean in August 2015 and shows market confidence has returned. We are expecting up to14 U.K. FIDs in 2018, Penguins is the second largest by reserves."

Deirdre Michie, Chief Executive of Oil & Gas UK, is also positive about the news. “This is great news and an exciting start to the new year. A global leader like Shell making a commitment on this scale demonstrates the investment potential the U.K. Continental Shelf still holds. It also shows the importance of the efficiency improvements our industry has delivered which have helped make redevelopment projects like this commercially attractive. We are hopefully entering a more positive phase for our industry in the U.K. with new projects on the horizon that I hope will bring a much needed boost for companies in the supply chain.”