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CALGARY HERALD: ‘Big excitement’ in U.K. over Buzzard, similar finds

Alberta activity interests consul-general
By SHAUN POLCZER

11 January 2007

Western Canada and the North Sea are half a world apart, but share common appeal for oil and gas producers, the United Kingdom’s consul-general to Canada said Wednesday.

“I find it slightly intriguing that land-locked Alberta should be so interested in the stormy wind-tossed seas of the North Sea,” says Nicholas Armour on a particularly blustery day in Calgary.

Despite the distance, the two countries have managed to build a close trading relationship worth $16.6 billion per year, making the U.K. Canada’s third-largest market for exports and investment.

Leading the way are homegrown oil and gas producers that have been active in the North Sea for decades, including luminaries like Talisman Energy Inc., Petro-Canada, Canadian Natural Resources Limited and Nexen Inc.

London-based Shell was one of the first oil and gas explorers in Alberta and Britain’s other big corporate heavyweight, BP plc, reasserted a long-standing Canadian presence with its takeover of Amoco Petroleum in 1999.

Across the pond, Nexen in particular has raised eyebrows at home and abroad with the start-up of the Buzzard field, the U.K.’s largest offshore oil discovery in a decade.

At its peak of 200,000 barrels per day (bpd), Buzzard will pump about 10 per cent of the U.K.’s oil production, accounting for about 40 per cent of Nexen’s company-wide output.

Armour says developments like Buzzard have “managed to attract the attention of the British government in a big way,” underscoring the importance of energy to its bi-lateral relationship with Canada.

“There’s big excitement there,” he says. “Which is very good news for them and good for us.”

Like Alberta, the North Sea’s conventional oil production is in a state of irreversible decline, creating opportunities for a new generation of technically focused independents determined to wring every last drop from the ground.

North Sea production peaked at 2.9 million bpd in 1999 and is projected to fall below one million bpd by 2010.

In that sense, the arrival of the Canadians has ushered in a new era in the North Sea, one characterized by the deployment of new skills and technologies developed here at home.

“It’s given us a whole new lease on life,” Armour says.

Big finds like Buzzard still might not be enough to stave off the decline, but with some 27 billion barrels remaining to be found, the size of the prize is substantial.

According to British upstream oil consultants Hannon Westwood, the U.K. sector of the North Sea needs $200 billion worth of direct investment to effectively drill up those remaining reserves.

As big multi-nationals look further afield for new opportunities, a growing proportion of that investment will come from countries like Canada and the U.S., where some 40 per cent of direct foreign investment is directed to the U.K.

Hannon Westwood credited a successful marketing drive by the government’s Department of Trade and Industry for helping to fill the gap.

“It will be no surprise that the majority of recent North Sea activity has been by small players chas ing short- term reserves and seeking additional funding and partners,” said Jim Hannon, a fo u n d i n g partner with the firm.

Britain has much to offer in terms of financial and legal expertise, common cultural ties and a central location for conducting business in the Middle East and other parts of the world, an issue of growing importance in a securitychallenged world.

“London is in many ways the capital of capital,” Armour notes. “Instead of oilsands engineering, we’re talking about financial engineering and how do you manipulate the best capital investment into doing these types of projects. I think we have quite a considerable bit of expertise in that.”

In addition, Britain offers an alternative view on issues such as climate change. Pointing to companies like Shell, Armour suggests European attitudes are five to 10 years ahead of their North American counterparts when it comes to recognizing the need for reducing greenhouse gas emissions.

He says it’s important Canadians recognize the need to meet the country’s international obligations under the Kyoto Accord while continuing to increase energy production.

“I do accept to a certain extent the argument that there’s no point in environmentally responsible countries backing off production of energy to see the slack taken up by those countries where environmental standards are much lower,” he says. “There’s no point going back to the Stone Age.

“But I think public opinion in both of our countries is generally leaning to an acceptance that the damage we do to the environment cannot go on the way it has in the past.”

Although Canada is a relatively smaller player in the world economy, it’s “not insignificant,” Armour says.

Armour insists the biggest barrier to trade is recognizing the opportunities that exist here at home.

“You’ve got huge resources and you’ve got a lot of talent. It’s an under sung role and I think Canadian diffidence is perhaps an occasional barrier to getting the message out.
“I think Canada can do a bit more to blow its own trumpet without necessarily being zealous and boosting themselves the way some other nations are prone to do.”

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