Falklands Oil Boom on Ice After Crude Price Slump

Falklands Oil Boom on Ice After Crude Price Slump

The biggest oil discovery off the Falkland Islands wouldn’t give investors sufficient profit at current crude prices, according to project operator Premier Oil Plc.

The biggest oil discovery off the Falkland Islands wouldn’t give investors sufficient profit at current crude prices, according to project operator Premier Oil Plc.

Premier is looking for $55 a barrel, compared with a price below $50 today, to get the desired 20 percent rate of return at its Sea Lion find, Chief Executive Officer Tony Durrant said Thursday. “If it was a little bit above that, we’d be a bit more comfortable,” he said.

Exploration around the South Atlantic islands has gathered momentum in recent years, with the Sea Lion discovery -- whose first phase holds about 220 million barrels -- generating particular enthusiasm. While project approvals globally are starting to pick up, Premier Oil and partner Rockhopper Exploration Plc have held off sanctioning Sea Lion’s development amid crude’s collapse.

“We are making a decision in 2018,” Durrant said in a phone interview. “What really matters is the oil price in 2021, 2022 when the field comes on stream.”

The Brent futures curve, which reflects what people are willing to pay today to secure supply in the coming years, indicates a level between $53.90 and $57 a barrel in 2021 and 2022. The global benchmark crude is currently trading below $48 in London.

“It’s more of a question of our overall comfort level with the oil-price environment, rather than what it specifically says on the screen in 2018,” Durrant said. The CEO subsequently said on a conference call that the plan to make a final investment decision next year could change.

Refinancing Nears

Premier has a 60 percent stake in Sea Lion’s phase 1 and the rest is held by Rockhopper, which made the discovery in 2010. Premier still derives about half its output from the costly North Sea, and needs to restructure debt following oil’s slump. Its proposed refinancing -- which it sees effective by the end of the month -- will provide a foundation for long-term plans including Falklands production.

The biggest oil discovery off the Falkland Islands wouldn’t give investors sufficient profit at current crude prices, according to project operator Premier Oil Plc.

Premier is looking for $55 a barrel, compared with a price below $50 today, to get the desired 20 percent rate of return at its Sea Lion find, Chief Executive Officer Tony Durrant said Thursday. “If it was a little bit above that, we’d be a bit more comfortable,” he said.

Exploration around the South Atlantic islands has gathered momentum in recent years, with the Sea Lion discovery -- whose first phase holds about 220 million barrels -- generating particular enthusiasm. While project approvals globally are starting to pick up, Premier Oil and partner Rockhopper Exploration Plc have held off sanctioning Sea Lion’s development amid crude’s collapse.

“We are making a decision in 2018,” Durrant said in a phone interview. “What really matters is the oil price in 2021, 2022 when the field comes on stream.”

The Brent futures curve, which reflects what people are willing to pay today to secure supply in the coming years, indicates a level between $53.90 and $57 a barrel in 2021 and 2022. The global benchmark crude is currently trading below $48 in London.

“It’s more of a question of our overall comfort level with the oil-price environment, rather than what it specifically says on the screen in 2018,” Durrant said. The CEO subsequently said on a conference call that the plan to make a final investment decision next year could change.

Refinancing Nears

Premier has a 60 percent stake in Sea Lion’s phase 1 and the rest is held by Rockhopper, which made the discovery in 2010. Premier still derives about half its output from the costly North Sea, and needs to restructure debt following oil’s slump. Its proposed refinancing -- which it sees effective by the end of the month -- will provide a foundation for long-term plans including Falklands production.

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