Riders on the storm

Survival in the waters of the South Atlantic is quite a challenge but the Sea Lion field has it cracked, or that’s what the partners in the prospect reckon.

It’s not just in a harsh geographical environment, the regional geopolitics have never looked too promising. The field lies within the waters of — well, there’s the problem. For much of Latin America, Sea Lion is offshore Islas Malvinas, part of Argentina. But the political reality is that it is offshore the Falkland islands, a UK territory. And that has long complicated exploration work in the area, with oil companies unable to use mainland facilities.

The oil price collapse since the middle of last year has seen everyone from the majors to the minnows slashing capex and slowing development plans. Surely an isolated discovery far from friendly landfall or markets would be dropped. But no, the Sea Lion is a hardy creature — as junior field partner Rockhopper Exploration re-affirmed to analysts today when it updated them on a new round of drilling aimed at further boosting reserves around the initial 2010 discovery.

The majority partner and operator is London-listed Premier Oil. In November last year, it said the project would be downsized because of lower oil prices but that it would go ahead. Capex requirements have been trimmed from $5bn to less than $2bn by reducing the initial development to 50,000-60,000 b/d from 80,000-100,000 b/d.

With start-up not foreseen before 2019, the partners expect Sea Lion to ride out lower oil prices and are assuming a long-term price of $85/bl. Of course, if one year from now that looks wildly optimistic, the brakes can be applied as the project is not due to be sanctioned for investment until mid-2016.

Premier had said it needed to farm out some of its stake but has now rolled back on that, saying that it continues to seek another partner but that, with the scaling back of the project, it is no longer a pre-requisite. And the scaling back may even have increased interest in participation. If the latest round of drilling is successful, there would be a new spur to outside interest.

And, of course, with so many others axing near term development plans and attacking costs, it’s not a bad time to be calling round contractors for competitive quotes.

For more information please contact OilBlog@argusmedia.com