LONDON–Chevron Corp. (CVX) will invest billions of dollars developing a giant offshore project in a remote and 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 its 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 a hundred kilometers northwest of the Shetland Islands, comes three months after U.K. 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 tax rise on profits from oil production last year was greeted by industry indignation and warnings that North Sea investment would be threatened, a prediction that appeared to gain credence when output from the basin fell 18% in 2011.
In an apparent sop to these criticisms, Mr. Osborne in March announced tax allowances for the type of harder-to-access deep water fields that Chevron intends to develop at Rosebank.
“The efforts by the U.K. 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 exploration and production division. “A successful Rosebank development will deliver positive contributions to the U.K. 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 million barrels of recoverable oil. The project is being jointly developed by operator Chevron, which holds a 40% stake, Norway’s Statoil ASA (STO), Austrian firm OMV AG (OMV.VI) 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 U.K. continental shelf. While many established North Sea producing sites were drilled in shallow water, the 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.
The 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 U.K.’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.”
– Alexis Flynn, Dow Jones Newswires