PLANS for the development of a massive oil field West of Shetland have been thrown into question as the crude price hit an 18-year low.

Brent crude fell to $22.27 per barrel yesterday afternoon amid the fallout from the Covid-19 coronavirus crisis and a price war between Saudi Arabia and Russia.

Hopes the two countries would resume talks were dashed at the weekend despite US pressure on them to try to reach an agreement.

North Sea in focus as fall in crude price gathers pace

With oil selling for less than half the price it fetched at the start of the month, fears are mounting that the North Sea oil and gas industry could be facing another deep downturn.

Royal Dutch Shell and Siccar Point Energy provided a fresh sign yesterday that the area may be hit hard as firms cut spending in response to the turmoil in the market.

The companies had been expected to give the green light later this year to a plan to develop the 800 million Cambo field West of Shetland by making a Final Investment Decision (FID) to proceed.

Cambo is one of the biggest undeveloped finds on the United Kingdom Continental Shelf and the project has generated huge interest in the industry. Shell bought in to the field in 2018. Development of Cambo could pave the way to other finds in the promising West of Shetland area being brought into production.

Oil strike West of Shetland fuels hopes of boom in frontier area

However, private equity-backed Siccar Point announced yesterday that the firms are now targeting FID in the second half of 2021, citing the “unprecedented worldwide macroeconomic dislocation” resulting from Covid-19.

The news underlines the scale of the challenges that firms are facing amid uncertainty about the outlook for oil and gas prices and the prospect of the coronavirus causing supply chain disruption for months.

Siccar Point’s chief executive Jonathan Roger noted: “Given the uncertainty of the global situation, including whether any people, goods and services can be mobilised … it makes sense to hold-off final approval until some normality returns to the market and a clear and robust path forward can again be established.”

Mr Roger maintained that Cambo remains an extremely attractive development with compelling economics. Siccar Point will continue work with supply chain partners on the project.

However, Shell appeared more guarded.

Asked about the decision to defer the Cambo FID, a Shell spokesperson said: “In response to the impacts of the current external environment, we are reinforcing the strength and resilience of our business by actively managing all our operational and financial levers. This includes reducing operating expenses and capital spend globally.”

Shell last week announced plans for deep cuts in capital spending on new assets and in operating costs, without saying how the measures would impact on its North Sea business.

The costs of the crude price plunge must be shared fairly

With the best outcome in respect of Cambo likely to result in work on the installation of facilities being delayed for months, the decision to defer FID provides more bad news for the North Sea supply chain following a grim few weeks.Projects on the scale of Cambo are few and far between in the North Sea these days.

A range of firms with significant North Sea operations have announced plans to cut spending this month.

EnQuest decided not to restart production from the Heather and Thistle fields to help it cut running costs by $150 million (£130m) after rethinking its plans in response to the recent turmoil in the market.

Industry body Oil & Gas UK recently called on the Government to provide urgent help for firms in the supply chain, claiming the sector had been left in a ‘paper thin’ state.

North Sea faces 'premature end' as firms slash costs amid mayhem in market

A rift between Russia and Saudi Arabia about how to respond to the impact of the coronavirus on demand brought an end to a system of production curbs introduced in 2016 to support the market after the last crude price plunge.

Bank of America Merrill Lynch (BofA) said: “Saudi and Russia have little to gain by keeping prices below $30/bbl and some agreement to lift them out of this abyss is likely.”

In a BofA global research report, the investment bank warned Brent crude could trade in the teens temporarily in April. It forecast the price would average $37/bbl this year and $45/bbl next year.

Investment groups Blackstone and Blue Water Energy put Siccar Point up for sale last year.

Big projects completed by Shell and BP West of Shetland in recent years, such as Clair Ridge, provided valuable work for the supply chain amid the downturn triggered by the plunge in the crude price from 2014 to early in 2016.

The projects were approved before the oil price plunged, after growth in supplies ran ahead of demand.

Shell and BP retrenched in the North Sea in response to the price fall.