Royal Dutch Shell PLC has postponed its Jackdaw natural-gas field development in the North Sea, the company said Tuesday, as energy companies slash spending in response to plummeting prices.
The project, which analysts estimate to be valued around $1 billion, is the second that Shell has delayed in the region. In March, a decision on whether to proceed with developing the Cambo field northwest of the Shetland Islands was postponed until next year, according to Shell and its partner on the project, Siccar Point, an oil-and-gas producer backed by Blackstone Group Inc.
The delays are in response to plummeting energy prices as budgets are cut and some projects’ economics no longer stack up.
A global glut in oil supplies triggered by the coronavirus pandemic’s destruction of global demand, sent the U.S. oil-price benchmark negative on Monday for the first time in history.
As the virus spread in February and March, major oil companies swiftly cut their budgets by 20% to 30%, curtailing plans for future projects. Shell and Exxon had some of the largest pipelines of pending projects this year, according to consulting firm Wood Mackenzie.
Earlier this month, Shell delayed its decision on its Crux gas project in Australia. The company also pulled out of a U.S. liquefied natural gas project — Lake Charles in Louisiana — to preserve cash, saying the timing wasn’t right for the investment. Its partner in the project, Energy Transfer LP, said it would take over.
In Mozambique, Exxon Mobil Corp. has delayed its Rovuma LNG project until at least next year.
“We’re working with the government and our partners to optimize development plans by improving synergies and exploring the opportunities related to the current lower-cost environment,” an Exxon spokesperson said. Standard Bank estimates the project cost at up to $32 billion.
Earlier this month, Exxon said it would cut spending by 30% in 2020.
Of the handful of projects which have received the go-ahead so far this year, Shell has said it is proceeding with its Surat gas project in Australia, albeit with a scaled-back plan, along with its Trinidad and Tobago Barracuda gas development.
In January, Cairn Energy PLC and Woodside Petroleum Ltd. also moved ahead with their Sangomar field, off the coast of Senegal.
Last year, energy companies invested in 44 projects, compared with 54 the previous year, when oil and gas prices were higher, according to Wood Mackenzie.
“We’ll be lucky to get more than 10 final investment decisions this year, ” said Robert Morris, analyst at Wood Mackenzie, adding that this would be around a fifth of the projects which were slated to go ahead this year, before oil prices collapsed.
North America, the North Sea and Africa are some of the regions expected to be hardest hit due to the higher cost of production, analysts said.
Norway’s Equinor ASA said in March that its 20% cut to investments included halting U.S. onshore drilling activity. It has also delayed an investment decision for its Bay du Nord project in Canada.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com
Source : MTV
