UK Govt Outlines Plans for Increased North Sea Production

Business Secretary John Hutton outlined plans for increased North Sea oil production today, as he gave the green light for two new field developments, changes to the North Sea licensing system and announced record interest in the latest licensing rounds.

The two new field developments - West Don and Don South West - due to start production in the first half of next year are estimated at peak to produce up to 50,000 barrels of oil a day, with total production of over 50 million barrels. These developments were inactive discoveries and have come to fruition as a result of the Government's fallow initiative.

Mr. Hutton also outlined his plans for new oil and gas fields to be carved out of unprofitable parts of some existing fields. The change will mean production from these new fields would be unaffected by Petroleum Revenue Tax. The changes will affect around 30 fields, and initial indications are that it could see additional peak daily production of 20,000 barrels of oil.

The announcements came as the Government hit a recent record for oil and gas exploration interest, with 193 applications covering 277 blocks being received for the latest 25th Offshore Licensing Round, the highest number since 1974. In addition, it was announced that the Government will be offering 97 new licenses, a record number, through the 13th Onshore Round.

Business Secretary John Hutton said:

"High global oil prices are in part a signal that producing countries need to increase supply. All oil producing countries need to take action, and it's therefore important for us to make sure we sustain the right environment to maximize recovery of the UK's own reserves. The North Sea industry is of central importance to the British economy: it supports some 380,000 jobs, with investment worth around £ 5 billion a year.

"The level of interest there is for investment in the UK oil and gas sector is an overwhelming endorsement of the Government's policies to bring new players into the market, and exploit fully our reserves. Today's approval for the West Don and Don South West fields are prime examples of this. Both were unexploited discoveries, which will now provide additional reserves to bolster UK supplies. "

It is widely acknowledged that the UK still has a possible 25 billion barrels of oil equivalent left to produce. Government is working closely with industry to ensure we tap the full potential.

West Don and Don South West

Both West Don and Don South West are located in the northern North Sea, approximately 150 km northeast of the Shetland Islands and 12 km north of the Thistle Field in a water depth of approximately 500 ft. The operator for the Don Fields is Petrofac Energy Developments Limited. First oil is targeted for the first half of 2009. Oil export from the Northern Producer will initially be by offshore tanker loading for approximately six months and then switch to pipeline export via a subsea tie-back to the Thistle platform and the Brent pipeline system.

North Sea licensing structure

It will be up to licensees to make a case for a change of field determination on economic grounds. This would then be scrutinized by BERR, Treasury and HMRC officials to ensure there was a genuine case for change and that it satisfied economic, geological and wider fiscal requirements; it would then need to be approved by both BERR and Treasury Ministers.

25th Round

Applications for the 25th Round closed on May 22nd.

The 25th Round, launched in February, included a record breaking 2,297 blocks or part blocks in. 72 blocks that were classified as "fallow" in 2007 were either fully, or partly, relinquished in time to be included.

The large number of license bids comes on the back of strong levels of exploration - 2007 saw the highest number (111) of offshore exploration and appraisal wells drilled since 1996 (112).

Before any license awards are made, BERR will assess whether activities carried out under licenses applied for in the 25th Round will have significant effects on the integrity of any Natura 2000 sites. This is required by the legislation implementing the Habitats and Wild Birds Directives.

Any licenses awarded in the 25th Round will contain conditions to protect environmental interests and those of other sea users. In addition, activities carried out under the licenses will be subject to a range of legislation which is designed to protect the marine environment, including legislation which implements the Environmental Impact Assessment Directive and the Habitats and Wild Birds Directives in respect of offshore oil and gas activities.

Government plans to make 25th Round license offers later in the year.

13th Onshore Round

Offers via the 13th Round will start to go out on May 30th. Ninety-seven Petroleum Exploration and Development Licenses will be offered to 54 applicants. This is a positive outcome that confirms the continuing commercial attractiveness of onshore oil and gas exploration opportunities in the UK. In addition to conventional oil and gas, applications were received for coalbed methane, mines gas and shale gas (gas still trapped in the rocks within which it was formed).