Lundin slashes budget by 11 pct

Swedish oil and gas company Lundin Petroleum has reduced its capital expenditure for 2018 compared to the 2017 level by 11 percent. 

The Swedish independent said on Tuesday that its 2018 development, appraisal and exploration budget, which totals $1.05 billion, represents an 11 percent decrease on 2017 capital expenditure.

Furthermore, the company’s production guidance for 2018 is between 74 to 82 thousand barrels of oil equivalent per day (Mboepd).

Production guidance 

The average production in 2017 was 86.1 Mboepd, which was 15 percent above the mid-point of the original guidance and above the revised 2017 production guidance.

Lundin Petroleum’s production guidance for 2018 is between 74 to 82 Mboepd with approximately 75 percent of the production contribution from the Edvard Grieg field offshore Norway.

Development budget

Lundin’s 2018 development expenditure is budgeted at 800 million. With respect to committed development projects, 2017 was the peak year of capital expenditure leading up to Johan Sverdrup first oil and 2018 development expenditure is 16 percent below the 2017 level.

Approximately 80 percent of the 2018 budgeted development expenditure relates to the non-operated Johan Sverdrup field (WI 22.6%) with 2018 being the peak year in terms of facilities installation for Phase 1 of the project.

From inception and up to year end 2017, Lundin Petroleum’s net capital expenditure on Phase 1 amounted to $1.6 billion. The project is ahead of schedule with over 65 percent complete at year end 2017 and is on schedule for first oil in late 2019. Lundin noted that the project is achieving significant cost reductions compared to the PDO estimate, with 25 percent savings to date excluding foreign exchange rate impacts, and further cost savings are anticipated with continued good progress on the project.

The submission and approval of the PDO for Phase 2 of the project is scheduled for the second half of 2018 and the 2018 expenditure budget includes beginning of Phase 2 development activities including commitment to long lead equipment items.

The operated Edvard Grieg field (WI 65%) started production in late 2015 and the planned development drilling program within the PDO has continued through 2016 and 2017 with 11 wells out of the planned 14 wells having been completed to date. The 2018 expenditure relates substantially to the drilling of the remaining three development wells with the jack-up drilling rig being demobilized in mid-2018 on completion of the planned program.

Budgeted expenditure for the non-operated Alvheim and Volund fields (WI 15% and WI 35% respectively) involves the drilling of two infill wells one on each of the fields with drilling scheduled in the second half of 2018.

Two wells in appraisal program

Lundin Petroleum’s pre-tax appraisal budget for 2018 is $135 million. The appraisal program involves two operated appraisal wells in the Utsira High area in the Norwegian North Sea.

One appraisal well at Luno II (WI 50%) which on success would lead to development planning and one horizontal appraisal well and testing at Rolvsnes (WI 50%), which has the potential to de-risk the significant potential in the larger basement high area. Both Luno II and Rolvsnes are possible subsea tie-back development opportunities to the Edvard Grieg facilities.

Additionally, an extended well test will be conducted at the Alta oil discovery (WI 40%) in the southern Barents Sea, which involves drilling of a horizontal production well and producing to a tanker for up to two months, to reduce the uncertainty around the recovery mechanism and provide the basis for development studies.

The 2018 appraisal budget also includes expenditure on front end engineering design (FEED) and PDO studies for Johan Sverdrup Phase 2.

Eight exploration wells 

The pre-tax exploration budget for 2018 is $115 million with a total of eight planned exploration wells.

Four wells are planned to be drilled in the southern Barents Sea. One well on the Svanefjell prospect in PL659 (WI 20%) and one well on the Shenzhou prospect in PL722 (WI 20%). The remaining two wells will be drilled in the southeastern area on licenses that were awarded in the 23rd licensing round, with one well targeting the deeper horizons of the Korpfjell prospect in PL859 (WI 10%) and one well targeting the shallow horizons of the large Gjøkåsen prospect in PL859 (WI 15%).

Four wells are planned to be drilled in the Norwegian North Sea on the Lille Prinsen prospect in PL167 (WI 20%) in the Utsira High, on the Frosk prospect in PL340 (WI 15%) in the Alvheim area which is currently drilling, on the Rungne prospect in PL825 (WI 30%) and on the Mandal High prospect in PL860 (WI 40%) where the company has recently acquired a position through a series of transactions. The acquisition of PL825 and PL860 are subject to certain government and seller bank approvals.