Shell eyeing UK upstream project delays including at Shearwater: source - S&P Global

London — Shell expects delays to a number of projects in the UK North Sea including the start-up of its Shearwater gas infrastructure hub, the centerpiece of a number of inter-linked investments, a source close to the situation said Thursday, as the company grapples with coronavirus and the turmoil in oil markets.

The delays also encompass a proposed development known as Jackdaw and progress on the Penguins oil project, and reflect last month's decision by the global major to slash its capital spending by 20% this year, as well as an issue with construction work in China.

Shell would not comment on the topic.

The Shearwater project aims to create a new infrastructure hub that will redirect gas and condensate to St Fergus in eastern Scotland from the Shearwater field, and from other fields being developed by Shell and other companies in the vicinity, such as the Arran, Fram and Columbus fields.

From St Fergus, natural gas liquids are to be sent on to the Mossmorran processing and petrochemical plant. The start-up of the new hub, first approved for development in 2018, is now deferred to 2021 from this year, the source said.

Shell also expects to delay until next year a Final Investment Decision on Jackdaw, a proposed gas and condensate development in the central North Sea, the source said. Approval had been expected in the current quarter.

And delays were expected in the redevelopment of the Penguins field in the far north of the North Sea, which was first developed in the early-2000s as a tie-back to the Brent field, itself now in the process of decommissioning.

Shell had not given an explicit schedule for Penguins. However there are believed to be hold-ups with construction in China of the floating production storage and offloading vessel, and some "rephrasing" of drilling was also expected, the source said.

Shell embarked on its current series of North Sea projects after hailing the success of the industry in reducing its costs in the wake of the 2014-15 collapse in oil prices.

Last June, Shell's UK and Ireland vice president, Steve Phimister, indicated the company expected to spend around $800 million annually in its UK upstream business for a number of years, and would be active in exploring for new resources.

The major has stakes in the three biggest West of Shetland fields operated by BP — Schiehallion, Clair and Foinaven — but its recommitment to conventional North Sea projects was seen as a sign of the UK oil and gas industry's reviving prospects.

Shell said on March 23 it was cutting its expected capex this year to $20 billion or below, part of a wave of spending cutbacks by oil and gas companies around the world in response to plummeting commodity prices.