Chevron makes large investment in North Sea project
BY ALEXIS FLYNN
LONDON - Chevron Corp. will invest billions of dollars developing a giant offshore project in a remote, technically challenging corner of the British North Sea, the latest sign that major international oil firms are being drawn back to the region, as efforts to ameliorate the UK's onerous tax regime begin to bear fruit.
The move was hailed by Energy Minister Charles Hendry, who said the "pioneer development" had the potential to unlock as much as a fifth of the country's remaining oil reserves.
Chevron's decision to start allocating the main engineering and design contracts for the Rosebank project, located in rough seas more than 100 km northwest of the Shetland Islands, comes three months after UK Chancellor George Osborne announced a raft of tax measures aimed at encouraging renewed investment in one of the world's older oil and gas basins.
A surprise hike in tax on profits from oil production last year was greeted by industry indignation and warnings that North Sea investment would be threatened. This prediction appeared to gain credence, when output from the basin fell 18% during 2011. In an apparent sop to these criticisms, Mr. Osborne in March announced tax allowances for the type of harder-to-access deepwater fields that Chevron intends to develop at Rosebank.
"The efforts by the UK government, to stimulate development in this important region, have enabled the progression of this project and underline the importance of industry and government collaboration," said Brenda Dulaney, managing director of Chevron's European E&P division. "A successful Rosebank development will deliver positive contributions to the UK economy through employment, production, tax revenue and enhanced energy security for the country," said Ms. Dulaney.
The Rosebank field, discovered eight years ago, is believed to hold up to 240 MMbbl of recoverable oil. The project is being developed jointly by operator Chevron, which holds a 40% stake, Norway's Statoil ASA, Austrian firm OMV AG and Denmark's DONG Energy.
The company declined to say how much it expects Rosebank to cost, but independent estimates have put the total bill somewhere between $6 billion and $8 billion, split between its various partners.
Unlike the central and southern North Sea, where oil and gas production has taken place since the 1960s, fields like Rosebank lie in an area of ocean on the edge of the UK Cntinental Shelf. While many established North Sea producing sites were drilled in shallow water, West of Shetland is characterized by extreme weather conditions and water depths.
Because developing these types of projects is inherently more complex--and expensive--the threat of continued higher taxes led firms and industry bodies to warn that future exploration in the area would be curtailed without some kind of state encouragement. This investment is expected to lead to the creation of around 300 direct jobs, with up to 1,000 more in the supply chain and wider economy, said Chevron.
"It is a boost for both the UK's energy security and the economy, with significant numbers of jobs expected to be created and secured on the back of this project," said Mr. Hendry, who added: "opening up this area has been challenging [but the announcement] is firm evidence of the successful work between industry and government to realize the North Sea's full potential."
Dow Jones Newswires