Premier awards Sea Lion FPSO FEED to SBM Offshore

Premier Oil, an independent oil company, has awarded SBM Offshore the Front-End Engineering and Design (FEED) contract for an FPSO for Phase 1 of its Sea Lion development in the North Falkland Basin, offshore the Falkland Islands. 

The 18-month contract awarded to SBM Offshore covers the FEED elements of the proposed FPSO. The asset will be a converted FPSO with a throughput capacity of approximately 85,000 barrels per day and will operate in 450 meters of water.

Premier Oil is the operator of the licence containing the Sea Lion discovery with 60% interest, while Rockhopper Exploration has 40% interest.

According to Rockhopper Exploration, an oil and gas exploration and production company, the pre-FEED work for Phase 1a of the Sea Lion development was recently completed and the project entered FEED phase with the FPSO FEED award.

In addition, preferred contractors were selected for the provision of the various subsea system facilities and subsea FEED contract awards is expected during the first quarter of 2016.

An application has also been made to FIG to extend the licence for the Sea Lion Discovery Area in PL032, Rockhopper said on Wednesday.

Rockhopper added that, in response to the current lower oil price environment, several technical and cost improvements and efficiencies have been identified to materially enhance overall project economics and draft Field Development Plan (FDP) has been prepared and submitted to the Falkland Island Government.

Highlights of the Phase 1a development include:

– Resources to be commercialised increased from 160 mmbbls to 220 mmbbls recoverable;

– Field peak production increasing from approximately 60,000 to 85,000 bbls per day;

– Field life increased from 15 to 20 years;

– Well count increasing from 14 to 18, with 13 wells drilled pre-first oil;

– Despite the increase in scope, the estimate of pre-first oil capex requirement remains at $1.8bn, equivalent to approximately $8 per barrel – a 30% reduction in pre-first oil capex per barrel.

– Significant improvement in project economics for both partners resulting in a significantly lower break-even oil price for the project.

Pathway to FID

According to Rockhopper, Final Investment Decision (FID) is now targeted for mid-2017 with a target first oil date during 2020.

The company has commissioned a Competent Person’s Report (CPR) to provide an independent assessment of the reserves and resources of the material assets within its portfolio including the Sea Lion development and following the outcome of the North Falkland Basin exploration campaign. Rockhopper says it expects to release the results of the CPR during 2Q 2016.

Amendments to commercial arrangements

The joint venture partners, Premier and Rockhopper, have documented the revised commercial arrangements “in light of the newly improved project and low oil price environment”.

According to the new revised agreement, Rockhopper will access the full $48 million exploration carry for the 2015/16 drilling campaign and it will contribute 40% of pre-sanction costs, currently estimated at $50 million gross ($20 million net to Rockhopper) during 2016.

Furthermore, Rockhopper will retain $337 million development carry for the Phase 1a; a further $337 million development carry deferred to the subsequent phase of development.

Rockhopper said that Existing Standby Finance arrangements were simplified to a more traditional loan structure of up to $750 million from Premier Oil. Rockhopper will continue to review alternative funding sources.

In addition, the joint venture partners have further progressed the financial arrangements between them as it relates to the provision of any guarantees required to allow FID to take place.

Premier will provide parent company guarantees as required by contractors on behalf of Rockhopper prior to and at the point of sanction to allow FID to take place. Rockhopper will pay Premier a Guarantee Fee calculated on basis of a 50:50 share of Phase 1a NPV at project sanction payable post first oil via quarterly payments over the first five years of production.

Based on the 85,000 bbls per day peak production, Rockhopper’s share of projected quarterly gross revenue at oil prices of $65/bbl, $75/bbl and $85/bbl would be approximately $200 million, $230 million and $260 million respectively  The quarterly Guarantee Fee is currently set at $15.9 million and was calculated based on the project at November 2014. The parties may agree to adjust the Guarantee Fee should it result in a split of project NPV that is different to 50:50 at project sanction. The agreement  of the final Guarantee Fee amount will be required prior to project sanction.

Sam Moody, CEO, commented: “Today’s announcement provides the Sea Lion project with significant additional technical momentum whilst fully aligning the partners economically. The huge improvements to the project, combined with the award of the FPSO FEED and finalisation of the commercial terms with Premier allows us to keep moving the Sea Lion project towards a sanction point in mid 2017 despite the low oil price environment. We are delighted with the efficiencies the Joint Venture teams have identified and this, combined with the new commercial arrangements, mean that both Rockhopper and Premier now enjoy good project economics at oil prices significantly lower than before.

“The recent discoveries in the Isobel Elaine complex could open a third area of development in the basin and this on top of the already proven resources of Phase 2 should have a very significant impact on the life of field opex costs for Phase 1a.

“With the merger with Falkland Oil & Gas due to complete shortly, this news adds further momentum to activity in the basin as a whole.”