Sea lion’s first roar pushed back as costs rise to $1.4 billion for Falkland Islands’ oil project

Israel’s Navitas Petroleum has postponed a final investment decision (FID) for its giant Sea Lion oil project in the North Falkland Basin (NFB), bumping it to next year for Phase 1, following the cost hike to $1.4 billion.

Following Harbour Energy’s move to leave the Sea Lion project in September 2021, Rockhopper, Harbour, and Navitas inked a detailed heads of terms deal in December 2021 to allow a clean exit for Harbour and a farm-in for Navitas. The trio followed this with legally binding definitive documentation in April 2022, opening the doors for Navitas to enter the NFB.

After the project’s field development plan (FDP) was updated to encompass an initial development stage – targeting 312 million barrels of oil (mmbbls), up from 269 mmbbls – with the certified gross 2C resources in the overall North Falkland Basin getting boosted from 712 mmbbls to 791 mmbbls, the FDP for the project was sent for approval.

The Israeli player handed over an environmental impact statement (EIS) to the Falkland Islands government regarding its proposals to drill oil wells and start offshore production from the Sea Lion field’s Northern development area, entailing Phase 1 and 2, and associated activities, kick-starting a statutory period of consultation, which was slated to end on August 13, 2024.

Recently, Navitas provided an updated NFB independent resource report conducted by Netherland Sewell & Associates (NSAI), known as the ‘October 2024 NSAI independent report,’ conducted on behalf of the Israeli firm, which sees Sea Lion as “the next big thing.” 

The company’s partner, Rockhopper Exploration, confirmed the submission of the EIS for the Northern development area, including phases 1 and 2, to the Falkland Islands Government (FIG) for statutory public consultation in July 2024. Come November 2024, the FIG confirmed no further public consultation was required.

Since a floating, production, storage, and offload (FPSO) vessel, which will be anchored to the seabed within a 1,275 m radius exclusion zone, will be used to produce the fluids from the wells, a memorandum of understanding was signed for the provision of a redeployed FPSO with a current UK safety case. The front end engineering design (FEED) work for the FPSO started in November 2024.

According to Rockhopper, the hydrocarbons will initially be produced through the redeployed FPSO with a peak production rate of up to 55,000 bbls/d. The continued industry cost inflation has increased the gross capex required to reach first oil, climbing to $1.4 billion, including contingency. 

However, the project economics are perceived to remain highly robust despite the increase. Following these developments, Navitas indicates that FID is now scheduled for mid-2025 and the first oil has been moved to Q4 2027. The new NSAI report categorizes the resources into three areas: Northern, Central, and Southern development areas.

The Northern development area, previously described by Rockhopper as Sea Lion Phase 1, uses a single FPSO with two separate drilling campaigns, which Navitas refers to as the Northern area Phase 1 and Phase 2, recovering 319 mmbbls of oil in total (compared to 312 mmbbls in previous reports)

Moreover, the Central development area contains what Rockhopper has previously described as Sea Lion Phase 2 with Zebedee, Casper, and other associated fans, while the Southern development area aims to develop fans around the Isobel/Elaine discovery.

Aside from the previously certified Northern development area, phases 1 and 2 FDP, a further development plan has been certified by NSAI to develop the Central area. With Phase 1 comprising 12 wells, the gross 2C development pending oil resources have increased from 312 mmbbls to 532 mmbbls out of overall 917 mmbbls certified discovered oil resources in the NFB.

The Israeli firm has begun work on the Central development area, Phase 1 FDP. Based on the NSAI’s independent report, the certified gross 2C recoverable oil resources in the overall NFB have increased from 791 mmbbls to 917 mmbbls while 2.1 tcf of 2C recoverable gas resources have been certified, representing an increase in oil resources of 16% in the overall NFB portfolio compared to the previous certified 2C resource, as published in January 2024.

Moreover, the phased development concept for the Sea Lion field encompasses 35 wells, with the first phase in the Northern Area entailing 11 wells, with approximately 6 drilled and completed before the first oil, while the second phase in the same area covers 12 wells, rounded off with the third phase, also with 12 wells but in the Central area.

The Phase 1 and Phase 2 total barrels developed are expected to be 319 mmbbls while the amount across all phases, including the third one, is anticipated to be 532 mmbbls. The peak production rate for the first two stages is 55,000 bbls a day, increasing up to 120,000 bbls per day with all three phases developed.

While the first oil capex for Phase 1 is now $1.4 billion, the total capex for all three phases is estimated to reach $4 billion, with a production breakeven of approximately $24 per barrel. The development on hold category of 376 mmbbls 2C is the additional gross resources contained on the NFB held by Navitas and Rockhopper, including Sea Lion and Isobel/Elaine, that could be developed under future phases but for which there is no current development plan.

The development not viable category of 10 mmbbls is the additional gross resources from gas condensate contained on the NFB that could be developed under future phases but for which there is currently no published development plan or market.

The last independent resource report, commissioned directly by Rockhopper was the ‘ERCE 2016 report’ which had an estimated 2C value of 517 mmbbls. The company holds a 35% working interest in Sea Lion and associated NFB licenses. Previously, 20 exploration and appraisal wells were drilled at the Sea Lion field, with past investments amounting to about $1.3 billion.

This is said to be the first potentially commercially viable hydrocarbon discovery in the NFB, which Rockhopper discovered in 2010. With a projected field life of 30 years, previous estimates indicated that phases 1 and 2 could recover around 306.9 million stock tank barrels (mmstb) of oil during that time.

Located approximately 220 km to the north of the Falkland Islands in Block 14 / 10, the Sea Lion field in the production license areas PL032 and PL004b encompasses the proposed phases 1 and 2 developments.

A mobile offshore drilling unit (MODU) is expected to drill 23 completed wells over six drill centers, consisting of 16 oil production wells, 6 water injection wells, and a remote gas injection well.