North Sea oil likely to remain profitable to small explorers for at least another 20 years, EnQuest chief says

Out-Law News | 04 Apr 2012 | 4:39 pm | 2 min. read

North Sea oilfields will likely remain profitable to small explorers for at least another 20 years, the chief executive of the UK's biggest independent oil company has said.

In an interview with the Sunday Telegraph, Amjad Bseisu said that there remained plenty of opportunities for smaller players despite an overall fall in North Sea oil and gas production over the past 15 years. His company, EnQuest, recently announced that its 2011 pre-tax profit had more than doubled, to over $390 million.

Total North Sea oil and gas production has declined from four million barrels a day to just under two million over the last 15 years according to the paper, with a 20% drop in production in the last year alone following the 2011 Budget's increased tax burden for North Sea oil producers. However EnQuest itself has seen its own production steadily increase, with the company projected to hit 40,000 barrels a day by the end of 2014.

"When the large companies move out because a field is too mature for them, we take over and develop the small field they left behind," Bseisu told the paper. "I do think there's still potential. You're talking about one million barrels a day of North Sea oil production, which is $100m a day of revenue the UK doesn't have to spend on foreign oil.

"We will continue seeing decline, though we may be able to stem it for a few years, but I think we will still be seeing oil produced in the North Sea in 20 years' time," he added.

Energy law expert Jason Hambury of Pinsent Masons, the law firm behind, said that recent announcements aimed at increasing certainty for oil and gas investors were already beginning to have a positive impact on the sector. As part of last month's Budget the Chancellor announced a package of tax measures aimed at increasing investment in oil and gas production, including a 'new field allowance' worth £3bn specifically targeted at deepwater drilling west of Shetland. The Government also plans to set out the amount of tax relief due to oil and gas producers when their facilities are decommissioned contractually, to offer them long-term certainty.

"The introduction of legislation that will allow the Government to set out decommissioning tax reliefs contractually is a positive step, and will allow existing oil and gas operators to plan for the future with a greater degree of certainty," Hambury said. "It will also have the knock-on effect of delaying the decommissioning of older facilities, allowing for the maximum use of these resources."

New field allowances intended to encourage the development of smaller oil fields would also encourage operators to maintain production levels into the future, he added. Field allowances are deducted from a company's adjusted ring fence profits before it has to pay tax.

"Developing smaller fields will also create jobs and maintain existing skill sets, in the construction industry as well as in oil and gas," he said. "In addition, the UK will be able to export its expertise to other parts of the world - particularly for more challenging projects, such as deepwater drilling."

Bseisu added that the changes to the small field allowance meant that the UK was "looking attractive again" as a destination for oil and gas investment.

"The changes help the investment atmosphere in the UK and will go some way to help bring small and marginal fields to development," he said. "There are 340 of these small fields that are undeveloped or abandoned and we are looking actively to see what we can do in light of the new tax regime to invest more in the UK and put more of these onstream."

The company plans to invest $1bn in the UK this year, resulting in the creation of an estimated 10,000 jobs. In its annual statement (65-page / 491KB PDF), the company said that its 2012 investment programme included 11 new wells and further development of the Alma and Galia oil fields.