BP to go ahead with $500m Shetlands investment

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OIL group BP is pressing ahead with a $500m-plus investment in the Shetland Islands, a shot in the arm for the Government’s efforts to revive the North Sea oil industry to help kickstart a flagging economy.

Though North Sea output has fallen by about two thirds since 2000 and a surprise tax increase in 2011 led to dire predictions about its future, industry body Oil & Gas UK in February forecast a pick-up in production from 2014, fuelled by renewed government support and a surge in investment.

BP’s investment, which could pave the way for a big add-on project at its Clair field, coincided with a government effort to boost investment in the oil and gas sector.

Business Minister Vince Cable and Energy Secretary Ed Davey will travel to Aberdeen, known as the oil capital of Europe, where they will pledge government commitment to a stable tax regime for the industry, and announce plans to develop Britain’s supply chain further and try to plug an engineering skills gap.

Under BP’s plans, it will drill at least five appraisal wells in the giant Clair field off the west coast of the Shetland Islands, north of Scotland, to discover whether it is worth further development.

BP and its Clair partners, Shell, ConocoPhillips and Chevron, in 2011 said they were investing £4.5bn in a second phase of development for the field, which first started pumping oil in 2005.

“If successful, the appraisal programme could pave the way for a third phase of development at Clair – this is now a real possibility,” BP’s North Sea regional president Trevor Garlick said in a statement.

Big oil companies have tended to look beyond the North Sea in recent years, favouring new oil provinces with more potential, but the rich geology of the areas around the Shetland Islands has kept them hooked.

The British government has been at pains to reclaim the trust of oil and gas industry after the 2011 shock tax rise.

New tax breaks, for older oil fields, heavy oil fields, deep-water fields and clarity over field abandonment tax relief have over the last two years helped give companies the confidence to move ahead with new plans.

BP has an operation in Saltend, the East Riding of Yorkshire.