NORTH Sea-focused Independent Oil and Gas has said it is making great progress towards drilling a key well East of Shetland, as it grapples with the challenges posed by the crude price slump.
The London-based firm said it has reached the advanced stages of planning for a well to assess the Skipper heavy oil find, with the firm lining up support from suppliers for drilling work on apparently helpful terms.
The deals under discussion have increased directors’ confidence that it will make sense to drill the Skipper well, even if the crude price does not recover any of the ground it has lost since June last year.
Based on estimates that Skipper could contain 34 million barrels recoverable oil equivalent, Independent believes the field could be developed profitably if crude sells for more than $34 per barrel.
Brent crude traded at around $45/bbl yesterday compare with $115/bbl in June last year.
Mark Routh, chief executive of Independent Oil and Gas said: “We are absolutely committed to the future of the North Sea and whilst this may be seen as a counter cyclical investment, we are confident that the economics are robust at today's prices and will only improve if and when commodity prices recover.”
The deals under discussion provide an example of the kind of flexibility some services firms are showing in the North Sea, where oil and gas firms are cutting activity in response to the fall in the crude price.
The Oil & Gas UK trade body has said increased co-operation between firms will be vital if the industry is to recover from the resulting downturn.
Independent Oil and Gas said US giant GE may provide a £2m loan towards the well costs.
The company has agreed terms to obtain equipment for the well from the GE Oil and Gas operation.
Another services giant, Weatherford International, has agreed to extend the repayment date of its existing $2m (£1.4m) loan from September 2016 to December 2016.
It has agreed in principal to defer some of its costs for the well.
Independent is in talks with a major firm that may supply a rig, with costs to be met on a mostly deferred basis.
Services firms may be prepared to wait to get paid until fields are operational.
However, Independent still needs to raise further funding for the proposed well. The company said it continues to progress talks to raise sufficient additional capital with the aim of ensuring the Skipper well is fully funded, including an appropriate contingency.
In August Independent said a firm it expected to provide investment that would help fund the development of Skipper had apparently lost interest.
The unnamed firm decided not to proceed with the planned investment following the renewed fall in the oil price in the summer.
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