Harbour Energy’s intention to streamline its portfolio by focusing mainly on North Sea assets is noteworthy because the strategy includes the option to exit the $1.8 billion Sea Lion project in the Falkland Islands.
According to GlobalData, many exploration and production (E&P) companies are putting de-risking strategies in effect due to market downturn in 2020, which is causing an issue for the Falklands Islands Government in particular, as new remote oil markets are less likely to be desirable.
Effuah Alleyne, Senior Upstream Oil & Gas Analyst at GlobalData said market downturn in 2020 and de-risking through diversification and streamlining has led many E&P companies to re-evaluate their portfolios.
“Add in political pressure and environmental considerations, and you get the situation faced by the Falklands. The Falklands Islands Government had completely committed to the oil sector, but its efforts have unfortunately come at a time where E&P company investment strategies are focusing on low-risk, high-margin and capital-efficient projects. With the industry trending towards energy transition and low-carbon projects, it will be challenging for new remote oil markets.”
Harbour Energy, which was formed in March 2021 through an all-share merger between Sea Lion operator Premier Oil and Chrysaor Holdings, was a move by Premier to boost its North Sea assets and reconcile its mounting debt.
However, Premier’s debt troubles did not fare any better when the Sea Lion development was stalled after Brent Crude oil prices dropped as low as $18.38/bbl in 2020. Phase 1 of the project, with a development breakeven oil price of $39.50/bbl, was projected to come online in 2025 and is under review to restart.
Alleyne said Harbour Energy’s potential exit of Sea Lion can cause further delay to the project, which will not be good news for the Falklands Islands.
“The government continues to show commitment to the project, including extending Harbour Energy’s North Falkland Basin petroleum licences to include the Sea Lion discovery area until 1 November 2022 with no additional licence commitments.”
In addition to facing fluctuating economic conditions, E&P companies in the Falkland Islands have to contend with political pressure from the Argentine Government, which claims sovereignty from the UK over the islands calling to oil and gas activities, citing ‘unilateral acts contrary to international law’.
Alleyne adds: “Production from Sea Lion Phase 1 could contribute 28,750 barrels per day (bd) of crude oil by 2025 to Argentina’s declining production if Falkland Islands was part of its territory.”