ITHACA Energy has provided a further indication the big new fields companies are developing in the North Sea can operate profitably even at low crude prices amid signs the oil market may be starting to stabilise.
Confirming it expects to bring the Stella development onstream next month, Aberdeen-based Ithaca said the start of production will mean the company’s average production cost will fall to $20 per barrel from $25/bbl.
The update came on a day the Brent crude price rose to a four month high of $52.50 per barrel following news that US stock levels had fallen to the lowest levels seen since early this year.
Brent crude has risen by around 13 per cent since Wednesday last week, when Opec members agreed a deal to curb production to help support prices.
The crude price had slumped to $27/bbl in January amid a big excess of supplies, leaving many fields in the high cost North Sea making losses and facing the risk of being shut down.
But at current prices Ithaca would make more than $30 on average on each barrel it produces in the North Sea, and around $40 on production from Stella.
Last month the Oil and Gas UK trade body said North Sea firms were positioning themselves to succeed in the long term at $50/bbl.
The predicted fall in average operating costs highlights the benefits Ithaca expects to enjoy from using modern technology on Stella and the effect of moves by the firm to squeeze efficiencies out of the supply chain.
BP and Royal Dutch Shell have said they expect to achieve good profit margins on the output from the fields they are scheduled to bring onstream at West of Shetland.
It remains to be seen what impact the recent price rise may have on older fields. However, it will likely encourage hopes the industry has seen the worst of the downturn.
Last week’s agreement by Opec members to cut output by up to 700,000 barrels daily indicated they had decided they needed to support prices.
Opec had seemed content to let crude prices continue the retreat from the high of $115/bbl reached in June 2014, in order to squeeze US shale producers.
Some market watchers doubt the agreement to cut production will be implemented, amid tensions between Saudi Arabia and Iran.
In its latest economic report, Oil and Gas UK said firms had reduced the cost of extracting a barrel of oil or gas from the UK Continental Shelf by nearly half since 2014, to $16 per barrel this year. The cost-cutting drive has resulted in firms shedding thousands of jobs.
Led by Les Thomas, Ithaca expects to get more than 30 million barrels from Stella over time.
It is on course to produce 9,550 barrels oil equivalent daily in the first nine months, versus guidance of 9,000 boed.
Shares in Ithaca closed up 6.5 per cent, 4.5p, at 74p.
Analysts at Royal Bank of Canada wrote: “We anticipate the stock will continue to perform strongly against a backdrop of improving oil prices and near term production increase.”
The shares fetched 17p in January. They sold for 149p in July 2014, soon after the crude price peaked.
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