Shell has signed an agreement with North Sea-focused Ithaca Energy paving the way for its exit from the UK's controversial Cambo oil and gas field.
The deal defines a marketing process for Shell's 30pc non-operated interest in the undeveloped west of Shetlands project, 16 months after the company said it wanted to withdraw. The process, which will run for six months, has a number of potential outcomes designed to push the project forward to a final investment decision, Ithaca said.
Shell could either sell its entire share or a portion of it to a third party. In the event of the latter, Shell has the option to sell the remaining portion to Ithaca, which inherited a 70pc operating stake in Cambo through its takeover of private equity-backed Siccar Point Energy last year. If a third-party buyer were to want a greater share, Ithaca could decide to sell up to 19.99pc. Ithaca has not speculated what might happen if Shell fails to attract a buyer, but it said it will retain at least 50pc in Cambo and will remain operator in all sale scenarios.
With around 170mn bl of oil equivalent of recoverable resources, Cambo is touted by Ithaca as the second-largest undeveloped oil and gas field in UK waters with an important part to play in sustaining the country's oil and gas production. Shell does not dispute Cambo's potential to bolster the UK's energy security but it has long questioned the viability of the project's economics and flagged up its intention to withdraw several months before the fallout from the Ukraine war prompted the government to slap a windfall tax on North Sea profits.
The west of Shetlands region is relatively undeveloped compared to the rest of the UK North Sea, with extreme weather and sea conditions and a lack of infrastructure making it a costly area to operate in. Cambo's location is partly why it became a focus for climate protests in the UK ahead of the UN's Cop 26 summit in Glasgow in late 2021. Environmental group Greenpeace singled the project out in its campaign to pressure the UK government to block new oil and gas projects from going ahead. Scotland's then-first minister Nicola Sturgeon went on the record to say she thinks the field should not be given the green light.
Green credentials
While it waits for development consent from the UK's oil and gas regulator, Ithaca is keen to play up Cambo's potential to be "one of the lowest emissions intensity assets in the North Sea".
The firm plans to develop the field using a purpose-built floating production, storage and offloading (FPSO) vessel, with modern equipment designed to operate without the need for routine flaring or venting of hydrocarbons. The FPSO will also be electrification-ready, subject to grid connection availability. Ithaca expects Cambo to produce less than half of the amount of carbon dioxide for each barrel produced than the average UK field.
The UK government is under mounting pressure to scrutinise the environmental effects of new oil and gas fields, after the High Court in London last month granted Greenpeace permission for a full judicial review into the decision to launch a new licensing round last year. But ministers have to balance environmental concerns against energy security and affordability issues, which have risen to the top of the political agenda in Europe as the continent seeks to replace Russian oil and gas.
