The news that Total has apparently put its controlling stake in the Laggan-Tormore project in the West of Shetland sector up for sale at a reported £1billion is very serious.
That the company might be offering the 80% interest in this pioneering gas-condensate project seems nuts, given the sheer cost of getting the development thus far and so near to first production.
Check the internet and a variety of figures are given for the capital cost of Laggan-Tormore … as much as £5billion, though the Total Fast Facts currently sitting at the top of the heap on Google says £3.5billion.
On that basis, it would seem that the French oil & gas major is prepared to walk away from a development for less than it has already spent, bearing in mind that the project is now at an advanced stage.
Total fought tooth and nail to make Laggan-Tormore economic. Indeed the project required fiscal concessions before the company and 20% partner DONG were prepared to push the proverbial button and get on with making the West of Shetland gas-condensate dream come true.
A previous North Sea boss … Michel Contie … practically went to war with the New Labour government in the mid to late 2000s to win fiscal concessions that would enable Laggan-Tormore to proceed.
He was utterly baffled as to why the politicians of the day led by Gordon Brown could not see the value of strategically seeding this part of the UK Continental Shelf where gas export infrastructure was then completely absent except for a short BP-operated associated gas line serving that company’s interests … Clair, Foinaven and Schiehallion.
The most puzzling aspect at the time was that government had pressed companies to work together to exploit West of Shetland gas potential and had even helped establish a taskforce to look at how best to kick-start progress.
Indeed Contie was undoubtedly an important catalyst to the eventual creation of the West of Shetland Task Force (WoSTF) between the industry and government.
Eventually, in January 2010, government announced an incentive to extend the “field allowance” announced in the 2009 Budget to remote deepwater gas fields such as those found in the West of Shetland area.
The allowance would provide up to £160million worth of tax relief for each West of Shetland gas field that qualified for the support
That was enough for Total to get moving, with first production set for 2014. At that point the estimated CAPEX was around £2.5billion.
Laggan-Tormore would be Total’s third major production hub in UK waters, the others being Alwyn and Elgin-Franklin. Not only that, it might open the door to a family of future potential tie-in developments of which Edradour and Glenlivet are two.
I feel sure that Total’s UK MD, Philippe Guys wants to see Laggan-Tormore through to completion; I hope he is allowed to.
Of course, the ‘For Sale’ story could all be just a City rumour. But there’s generally no smoke from this quarter without fire.
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