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Global oil and gas project sanctioning in 2020 set to fall by more than 75%

Global project sanctioning is set for a staggering decline this year of over 75% from 2019 levels, as the COVID-19 epidemic has caused E&P spending to drop much lower than what was expected at the beginning of the crisis, reports Rystad Energy. The market analyst estimates total sanctioning value will end up at around $47bn, an amount that would be even lower if not for recent developments in Norway and Russia.

Of total global sanctioning value in 2020, some $27bn is expected to be for offshore projects, with the remaining $20bn for onshore. In 2019, the total sanctioning value reached $197bn, with $109bn going to offshore projects and $88bn onshore.

So far this year, the projects that have been committed are worth a combined $29bn, with $16bn going offshore and the remaining onshore. Rystad Energy’s forecast is based on a scenario in which Brent averages around $40/b this year, not far from its current market price.

‘At the beginning of this year, the project commitments forecast for 2020 were expected to be comparable to 2019, but the industry downturn thanks to COVID-19 has caused commitments to fall sharply. Going forward, we estimate that sanctioning will not pick up again and recover to 2019 levels anytime soon,’ says Karan Satwani, Energy Service Analyst at Rystad Energy.

On a positive note, a month ago total sanctioning was projected even lower than what is now anticipated, as developments in Norway and Russia have given total estimated levels a boost.

Gazprom awarded contracts for phase one of its Kamennomysskoye-More project at the Sevmash and Zvezdochka yards, both managed by United Shipbuilding Corporation. The contracts are for the construction of the foundation of an ice-resistant platform, with the design outsourced to engineering company Karoll. Rystad Energy estimates the first phase of the development will cost over $4bn.

Furthermore, Gazprom and RusGazDobycha have taken a final investment decision (FID) on the Semakovskoye field development onshore Russia. Russian drilling contractor Gazprom Bureniye has been awarded the drilling contract for the first phase of the project, which calls for six development wells. An additional 13 wells are scheduled to be drilled between 2021 and 2022. The project is estimated to cost nearly $1.2bn.

Meanwhile, the tax relief package recently announced by the Norwegian government has helped oil and gas operators improve project economics in Norway. Spurred by the programme, Aker BP commenced development activities on its Hod redevelopment project by awarding Kvaerner a $106mn contract for the topsides and steel substructure of an unmanned wellhead platform, in addition to the subsea pipelines and umbilicals contract to Subsea 7 in a deal valued between $50mn and $150mn. (Aker BP and Kvaerner have since unveiled plans to
merge their operations.)

Equinor has signed a letter of intent for both the Breidablikk and Askeladd West projects off the coast of Norway. The Breidablikk development, which includes the Grane D and Grane E fields, will be developed as a subsea tie-back to the Grane platform and is expected to cost nearly $2bn. Aker Solutions has been awarded a letter of intent to supply the subsea production system and associated equipment, which includes 15 subsea trees in a deal worth $206mn.

Aker Solutions has also been awarded a letter of intent for the subsea production system at the Askeladd West development, valued at $41mn. The scope includes two subsea trees and one template with a manifold and associated equipment. The development of Askeladd West is phase two of the multi-phased Snøhvit gas development project. TechnipFMC was awarded a letter of intent for the subsea installation work for both projects. However, the letters of intent for both projects are subject to a FID, which the operator plans to take later this year.

Lastly, LLOG Exploration has taken a FID for the Taggart deepwater development in the US Gulf of Mexico. The development plan includes tie-backs for two existing wells to the Williams-operated Devils Tower spar. Williams has reached a tie-back agreement with LLOG to provide offshore natural gas and oil gathering and production handling services for the development at the platform. Rystad Energy estimates the development will cost over $300mn.


News Item details

Journal title: Petroleum Review

Subjects: Oil and gas - Exploration and production - Forecasting - Banking, finance and investment -

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