High Costs, Taxes Hitting UK Oil, Gas Developments - Execs

ABERDEEN, Scotland Sep 4, 2007 (Dow Jones Newswires)

High costs and taxes could prevent development of some of the U.K.'s remaining oil and gas resources, even in areas where significant new discoveries are still being made, senior oil industry executives said Tuesday.

"We are heading in a direction that will see sub-optimal development of gas our country desperately needs," said Frank Chapman, Chief Executive of U.K.-based BG Group PLC (BRG) at an industry conference in Aberdeen, Scotland.

"We need to gear the fiscal regime around exploration," he said. If current high tax levels in the U.K. persist, remaining oil and gas resources which are often difficult to exploit are not going to get drilled because the high capital investment may not be recovered, he said.

Total SA (TOT) announced another significant gas discovery Tuesday West of the Shetland Isles north of Scotland.

Untapped gas fields West of Shetland are thought to contain up to 17% of the U.K.'s remaining reserves, or 3 billion-4 billion barrels of oil equivalent, but development will be expensive because the area has no existing gas infrastructure and fields are located in deep, rough seas.

Robert Olsen, Production Director of Exxon Mobil Corp. (XOM) said despite months of discussion between government and industry, there is still no viable plan for development of the gas resources West of the Shetland.

ExxonMobil, Total SA (TOT) and BP PLC (BP) and other license holders have been looking at plans for joint infrastructure development in the area, but Olsen said the commercial justification for development has not yet been found. "The North Sea is one of the highest cost provinces in the world," Olsen added.

David Cairns, energy minister at the U.K. government's Scottish Office, denied the current tax regime was making the U.K. oil and gas sector uncompetitive. He said the government is committed to encouraging further development of resources in the North Sea and there will be no change to the tax regime during the current parliament, which could run up to 2010.

Copyright (c) 2007 Dow Jones & Company, Inc.

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