FAROE Petroleum has drilled a second dry well off Norway in the space of five months amid tough conditions for the oil and gas industry.
The Aberdeen-based firm said the Portrush well would be plugged and abandoned after drilling produced disappointing results.
In May Faroe abandoned the Bister well following a similar setback.
News of the latest reverse came on a day when Goldman Sachs warned the oil price could plunge as low as $20 per barrel with global supplies running well ahead of demand.
The US investment bank said with growth faltering in China it could take another big drop in crude prices to clear the overhang of unsold stock.
“The oil market is even more oversupplied than we had expected,” said Goldman Sachs, which noted the growing potential for oil prices to fall to near as storage facilities continue to fill.
With the bank expecting the oversupply to persist until late 2016, Goldman Sachs has slashed its forecast for the Brent Crude price for next year, to $49.5/bbl, from $62/bbl in May.
It has left its 2017 forecast at $65/bbl.
On Thursday Macquarie investment bank cut its 2016 forecast for Brent crude, to $58 per barrel from $68/bbl. Macquarie cut its 2017 forecast to $67/bbl, from $81/bbl.
The cuts highlights the scale of the challenge facing the industry in the North Sea. Firms have slashed investment and shed around 5,500 in response to the crude price plunge, from $115/bbl in June last year to around $48/bbl yesterday.
The Wood Mackenzie energy consultancy has warned 140 North Sea fields could close over the next five years.
But that prediction was based on the assumption the Brent price would recover to $85/bbl.
Against that backdrop oil and gas firms will face challenges maintaining investor interest.
However, the slowdown has provided opportunities for firms that have funding in place for exploration and development activities. The cost of drilling and other services has fallen sharply in response to moves by services firms to try to maintain market share.
Faroe Petroleum’s chief executive Graham Stewart said: “Whilst the results of this well are disappointing, we were fortunate in that we have been able to take advantage of reduced rig rates and associated drilling costs.”
He noted that exploration work qualifies for generous tax breaks in Norway.
In April Faroe said the Skirne East well off Norway resulted in a discovery that was smaller than predicted but still promising.
Faroe said drilling operations are continuing on the programme to follow up on the significant Pil and Bue discoveries it made off Norway last year.
Analysts at Numis Securities said of Portrush: “This was a low cost well, opportunistically taking advantage of reduced rig rates, and the result has no impact on our estimates.”
Goldman Sachs noted that global oil and gas production will continue to increase for some time. This is partly because many projects that were approved in areas such as West of Shetland before the crude price fell are still under construction.
Production is expected to rise in the UK Continental Shelf in 2016, the first increase in 15 years.
The easing of sanctions on Iran will boost supplies.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here