Royal Dutch Shell has provided fresh encouragement for the North Sea oil and gas industry by deciding to develop the Arran field around 150 miles east of Aberdeen.

The field development is the fourth the oil and gas giant has approved in the UK North Sea this year.

Led by chief executive Ben van Beurden, Shell said the decision to proceed with Arran provided further proof of its commitment to the UK following a period of retrenchment amid the crude price plunge.

Shell cut more than 1,000 North Sea jobs and sold off a raft of assets in response to the deep downturn triggered by the slump in the oil price that started in the summer of 2014.

The decision to develop fields such as Arran shows giants like Shell once again see the potential to achieve good returns on projects in the North Sea.

The partial recovery in the crude price since late 2016 combined with a sharp fall in the cost of support services has helped improve the economics of some developments.

BP approved two North Sea field developments in April. These include the Alligin field West of Shetland which it is developing with Shell.

Wood Mackenzie noted Arran is the 11th North Sea project to win approval from operators this year.

Industry body Oil & Gas reckons Shell’s Arran announcement will further boost investor confidence in the potential of the basin.

But the North Sea supply chain is set to remain under pressure.

The projects approved this year are much smaller than the giant developments West of Shetland that Shell and BP have been working on, which were approved before the oil price tanked.

Arran is expected to produce 21,000 barrels of oil equivalent per day at peak. First gas is targeted in 2021.

Shell and BP expect to start production from the Clair Ridge development West of Shetland this year, with output expected to peak at 120,000 boepd.

Majors are focusing investment on favoured areas and assets. Arran will be tied in to Shell’s Shearwater platform using subsea pipelines.

While the crude price has risen to around $84 per barrel from less than $30/bbl early in 2016, Oil & Gas UK said producers need to keep the pressure on costs.

“The industry’s challenge is to hold firm in its approach to further improve the competitiveness of the basin so that it continues to be an attractive destination for investors,” said upstream policy director Mike Tholen.

The Arran announcement will draw attention to the influential role a new generation of independents are playing in the North Sea.

RockRose Energy acquired a 20.43% interest in Arran from Korean-owned Dana Petroleum for a nominal sum in August. It said last month it had increased its holding to 30.43%. Holland’s Dyas has a 25% interest with Shell on 44.57%.

Shell has also approved the Fram development and the revamp of the Penguins field in the North Sea this year. The Arran development requires approval by the Oil and Gas Authority.

Source: Scottish Herald