UK HPHT gas fields: marginal cost?

This data-file captures the marginal cost of developing new gas fields in the UK North Sea and in Europe more broadly, by modelling the Jackdaw HPHT project costs.

Shell took a final investment decision to develop the field in 2022, targeting over 40kboed of production after start-up in 2025. We have reviewed the field’s environmental impact statement and modelled its production, capex, opex, tax and cash flows.

Our first conclusion is around strong economics. At $7/mcf gas and $60/bbl oil, we think the IRR at the development will surpass 30%. A $10/mcf long-term gas price uplifts this to a 40% IRR. The project has a surprisingly low break-even and can be resilient even below $4-5/mcf.

The risk, however, is not so much with prices as with implementation. The environmental impact statement gives a base case of 75Mboe of saleable resource, within a P10-P90 range that varies by 3x, from 40Mboe to 110Mboe. The reservoir is a complex array of turbidites, containing fluids at 191ºC and 17,000 psi, including 35-45 API gas condensate, 17% wax with a 46ºC wax appearance temperature, 4.2% CO2 and 30ppm H2S. To state the obvious, a field that fails to produce is going to face large potential write-offs. So it is delivery, not gas prices, that will mostly dictate economics.

Environmental credentials of the field are relatively strong. We were able to construct a build-up of total CO2 intensity from disclosures in the EIS (chart below). Shell’s target is to produce 6% of the North Sea’s gas for 1% of its CO2. Peak CO2 emissions during production will be 130kTpa, which has been reduced from 280kTpa in initial designs (details in data-file). We think total life CO2 intensity will be something around 14kg/boe, which is in line with some of the lowest-carbon gas resources in our broader screens around the CO2 intensity of producing natural gas.

Jackdaw HPHT project costs

To stress-test the economics (IRRs, NPVs) around Jackdaw HPHT project costs, including gas prices, opex, capex, development delays, and other variables, please download the data file.

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