Cambo Decision Rattles North Sea Investors

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Royal Dutch Shell’s decision to shelve the UK’s greenfield Cambo oil development has rattled North Sea investors and casts a shadow over other new, large-scale projects in UK waters. The delayed scheme was still in limbo awaiting final UK government approval before Shell pulled the plug last week. Climate-related opposition drew the company to conclude that the project could suffer potential further “nontechnical” delays and did not make economic sense. Shell’s retreat from Cambo could be a wake-up call for Whitehall, where policymakers have so far failed to get behind new projects. Shell’s pullout has sent a negative signal but doesn't necessarily kill the project forever. The company has not clarified whether it wants to exit its Cambo position or simply shelve it. It’s conceivable another partner would pick up Shell's stake, step into their shoes and proceed with the project. But that process will take time. “My view is that the best case is that the Cambo project gets delayed materially … perhaps [by] 12-18 months,” suggests Mike Beveridge, vice chair of energy and power at investment bank Piper Sandler in Aberdeen. Before Shell’s withdrawal the Cambo partners were thought to be working on a timeline of next February or March for the government to decide whether to approve the project. Shell executives had recently argued explicitly against banning new developments in the interests of UK energy security. Cambo is one of the UK’s biggest oil projects, with a Phase 1 development tapping 170 million barrels of oil equivalent over 25 years — or 50,000 barrels per day and 30 million cubic feet of gas. But it is relatively marginal versus other opportunities in Shell’s portfolio. First oil was expected in 2025. In Beveridge’s view, Shell’s decision to walk away was “fundamentally a considered reaction to the fact that the public pressures are just getting too great." Shell appears to have concluded that it could no longer "be associated with... such a high profile oil and gas project … with the risk of protests and legal actions,” he adds.

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