Government gives BP the go-ahead for Shetland deepwater oil well

Out-Law News | 23 Mar 2012 | 5:38 pm | 1 min. read

The Government has approved oil giant BP's application to drill the deepwater North Uist well, northwest of Shetland.

The company plans to drill to a depth of 1,291 metres and says the area could hold "significant reserves" of oil.

Announcing the project, Energy Minister Charles Hendry said that oil and gas exploration "plays an important role in our economy and makes a significant contribution to our energy security".

However, he added that this security "should not come at a cost to the environment".

"That is why before giving consent, my Department has very carefully scrutinised BP's plans and their emergency response measures to ensure their operations are conducted to the highest possible standards," he said.

BP had to supply environmental impact and emergency response plans as part of its application, including detailed confirmation that the company had taken into account the findings of investigations into the April 2010 explosion on its Deepwater Horizon rig in the Gulf of Mexico. In addition, its well design and drilling plan was subject to further scrutiny by the Health and Safety Executive.

The area of the North Sea oil basin west of Shetland was described by the Chancellor during his recent Budget statement as "the last area of the basin left to be developed". As part of the Budget he announced a package of tax measures aimed at increasing investment in oil and gas production, including a "new field allowance" worth £3 billion specifically targeted at deepwater drilling in the area.

The amount and scope of existing "small field" allowances will also be extended, and the amount of tax relief due to oil and gas producers when their facilities are decommissioned will be set out contractually to offer them long-term certainty. Oil field allowances are deducted from a company's adjusted ring fence profits before it has to pay tax.

In a statement, BP said that exploration was an "important part" of its long-term UK investment plans.

"We have worked closely with the regulators throughout the planning and approval process for this well," the company said. "Ensuring our activities are managed safely and responsibly is our absolute priority – we have been exploring west of Shetland since the early 1970s and have safely produced over 800 million barrel of oil from the area."