AFTER the start of production from the giant Kraken field East of Shetland on Monday boosted the North Sea oil and gas industry, yesterday’s update from Wood Group provided a reminder of how tough things are in the area.
Coming soon after BP’s Quad 204 development came onstream West of Shetland, Kraken showed some firms expect to generate good returns from investing in big North Sea projects even at low oil prices.
Hurricane Energy’s success in making what could be a billion barrel find West of Shetland recently has fuelled excitement about a relatively under-explored area.
Wood Group, however, said life had got harder in the North Sea since January. Its experience suggests the partial recovery in crude prices since Opec members agreed production cuts in November has not persuaded oil and gas companies to increase investment. Nor do they appear to have eased the pressure there has been on the supply chain since the downturn started in 2014.
Given Wood’s size it is well placed to spot potential changes in market conditions.
The mismatch between excitement about Shetland and gloom at Wood reflects important timing issues.
Kraken and Quad 204 were approved before the crude price plunge started. The bulk of the work they will generate for the supply chain was completed before they came onstream.
It could be years before large scale field development work starts on any finds made in recent months.
With Brent losing ground in recent weeks amid concern about Opec’s ability to cap output levels, firms are unlikely to hurry to put finds into the investment approval process.
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