Sanctioning update – August 2021
Financial commitments for new projects this year are set to surpass $100 billion globally, led by the recent sanctioning of the fourth phase of the giant Mero pre-salt project off Brazil and recent financial investment decisions in the US Gulf of Mexico. Commitments in the offshore sector are expected to reach $64 billion this year, up nearly 40% on 2020 levels, while onshore commitments are set to see a 54% year-on-year leap to $37 billion.
August 26, 2021
Financial commitments for new projects this year are set to surpass $100 billion globally, led by the recent sanctioning of the fourth phase of the giant Mero pre-salt project off Brazil and recent financial investment decisions (FID) in the US Gulf of Mexico. Commitments in the offshore sector are expected to reach $64 billion this year, up nearly 40% on 2020 levels, while onshore commitments are set to see a 54% year-on-year leap to $37 billion.
Brazilian state oil giant Petrobras and partners took FID in August on the Mero 4 development in the Santos Basin offshore Brazil, signing a letter of intent with SBM Offshore for the charter of the Alexandre de Gusmao floating production, storage and offloading (FPSO) vessel for 22.5 years. The Dutch contractor has an agreement in place with Chinese yard Shanghai Waigaoqiao Shipbuilding (SWS) for fabrication of the hull, with other Chinese yards competing for the topsides modules. This will be the fourth FPSO to be deployed in the Mero field and will be the same size as the first three. Rystad Energy expects the project to require almost $2.5 billion in greenfield commitments, with first oil scheduled for 2025.
Shell and Chevron last month announced FID on their highly anticipated Whale development in the US Gulf. The project will be developed using a semisubmersible production facility with 15 oil-producing wells. The project was on track for sanction last year as Shell had agreements in place with Singaporean shipyard Sembcorp Marine (Sembmarine) for the construction and integration of the production facility, but following the onset of the Covid-19 pandemic, Shell decided in April 2020 to delay the project for at least a year due to poor market conditions. The operator did, however, honor its contracts with Sembmarine and fabrication work continued at a slower pace at the contractor’s yard. Rystad Energy expects the project to require almost $3.8 billion in greenfield commitments, with first production expected in 2024.
Beacon Offshore has started development activities on its Shenandoah field development in the US Gulf by awarding an engineering, procurement, and construction (EPC) contract for a semisub production facility to South Korea’s Hyundai Heavy Industries (HHI). The contract is valued at 659 billion won ($577 million) and the project partners are expected to take FID soon. Shenandoah was also on track to receive the green light for development last year but was delayed due to low oil prices and the Covid-19 pandemic. The main production facility will be a floating semisub weighing about 20,000 tonnes. Other contracts announced so far include one to TechnipFMC for the supply of subsea trees and another to Transocean for development drilling. The development is expected to require around $2.5 billion in greenfield commitments and will be the second so-called "20k project" in the US Gulf that will produce from reservoirs with pressures up to 20,000 pounds per square inch.
Other noteworthy projects sanctioned since our
last update include the third phase of the North Oil Company-operated Al Shaheen oilfield off Qatar. The development will involve a pair of wellhead platforms and a large new processing platform as well as subsea flowlines. South Korea’s Daewoo Shipbuilding & Marine Engineering won a contract worth 725 billion won ($630 million) to build the processing platform and Vietnam’s PTSC was selected for the EPC and installation of wellhead platforms. The project is expected to cost almost $1.4 billion. In UAE, Abu Dhabi National Oil Company has sanctioned the second development phase of its Al-Dabbiya onshore field sustainability project by awarding the EPC contract to Robt Stone. The project is expected to cost nearly $400 million.
Petrobras has continued to impress with the blockbuster sanctioning of more FPSO developments, accounting for more than 15% of total greenfield commitments globally this year. The operator has agreements in place with its preferred contractors for other projects that are yet to receive the go-ahead this year. Petrobras is expected to close the year with $16 billion-worth of projects sanctioned – its highest ever total since 2013. Greenfield commitments from oil and gas majors have, by contrast, been at their lowest level this year since the start of the century, with just over $10 billion-worth of projects expected to get sanctioned in 2021. TotalEnergies’ Tilenga project in Uganda accounts for more than 44% of these commitments and is expected to receive the green light soon, the operator has conditional agreements in place with the preferred contractors that will turn into the definitive contracts after the project is sanctioned.
For more on project sanctioning, click
here to read the August 2021 version of our Project Sanctioning Report and see the supporting data file using the excel link on the client portal.
here to perform further analysis using our Sanctioning dashboard.