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The Scotsman: Shell and North Sea

The Scotsman: Shell and North Sea

29 May 2005


LESS charitable views on Royal Dutch/Shell in the darkest days of last year had a lot in common with those of the North Sea. Like the company, the North Sea smacked of terminal decline, its glory days left behind some time in the 1980s, its talent moving on to new pastures.


So it must be gratifying for Shell’s North Sea explorers to strike a blow against both preconceptions. Last week it revealed that it had stumbled upon what looks like Norway’s biggest gas find in five years with its Onyx West well.


It’s good news for Shell’s turnaround. Perhaps its strategy to look to drill “Big Cat” wells – those which might yield Shell more than 100 million barrels in reserves – will achieve more than simply burning off all that excess cash thrown off by the high oil price, as many feared.


Shell’s choice of the UK and Norway as one of its core hunting grounds for Big Cats flies in the face of convention that North Sea exploration is only for minnows now.


BP has sold out of its biggest North Sea asset – the Forties field – ploughing the money into places where it believes future big discoveries are still to be had. The really big fields in any oil province are nearly always discovered first. In the North Sea, the largest fields found were the Forties, Brent and Piper, and the rest were discovered in the early 1970s.


Recent discoveries in the North Sea have ranged between about 10 million and 30 million barrels. The consensus goes that you might find 50 million barrels with a well, but a 300 million one like Onyx? No.


Shell obviously sees it differently. Out of the 19 Big Cat wells Shell plans this year, two are in Norway, one is in Denmark and there was even one in the heavily drilled UK. Next year it plans five more on the patch. So the North Sea cannot be written off quite yet.


Four years ago, the massive Buzzard discovery off Aberdeen shook the status quo. The team behind it have now struck out on their own as EnCore Oil to try and do the same again, convinced that the mainstream explorers are shying away from yet undiscovered prospects.


The UK and Norway have been experiencing something of an Indian summer for exploration. Last year was the busiest for drilling in the UK for six years and this year promises to be busier still.


With the industry rolling in cash from the high oil price, there’s more money for exploration budgets. Only about half of the oil in the North Sea has been pumped out, and as the price rises, smaller and more technically difficult fields suddenly look economic.


And if you’re hungry for new oil reserves, there are not that many places to look. The Middle East oil producers haven’t opened up their doors as western oil companies had hoped and Russia looks more and more off limits.


For the biggest companies the main draw in the UK and Norway are the less explored waters to the North – from the Shetland Islands to the Faroes, and from Mid Norway to the Arctic Sea. This is where Shell is most likely to be looking.


And it looks like there’s more good news to come. Shell said at last month’s results that it had struck oil with a UK well – yet to be announced – another Big Cat?

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