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SCOTLAND on SUNDAY: Why Shell’s oilfield sale will be good for the North Sea

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Sunday 17 June 2007

SHELL and ExxonMobil’s decision to sell some of their oilfield assets in the North Sea came not so much out of the blue last week, but as a relief to those who want the process to accelerate.

The scaling down of the big oil companies’ operations in the region has been a slow process, largely because of the 40-year licences awarded in the late 1960s and 1970s, allowing the majors simply to hang on to them.

Since the government began issuing threats to withdraw licences unless operations resumed, more than 30 wells have been drilled and some acreage has been farmed out to smaller firms in what is largely acknowledged to be one of the world’s fastest-declining areas for oil production.

Shell and Esso Exploration and Production, part of ExxonMobil, will be putting six mature oilfields on the market, opening up opportunities for the flourishing but underfed army of independents – such as Venture Production and Dana Petroleum – who can make the economics of smaller fields work. Over the past three years alone 108 new companies have grown up around the North Sea fields and for each of them a small amount of oil is good business.

Some obvious concern followed Shell’s announcement, notably over the threat to jobs and the decision to scrap plans for a £25m subsea centre of excellence, but there were also suspicions that it had something to do with either the threat of independence or Labour’s tough tax regime. The former looks barely credible. If the oil majors can cope with the unpredictability of regimes such as Nigeria and Russia then an independent Scotland would be a pushover. Gordon Brown’s taxes are less easily excused. Nobody should think that Shell is pulling out of the North Sea, but neither can anybody say Brown wasn’t warned that higher taxes would frighten away investment.

Whether or not tax was an issue, the process of majors offloading assets in the North Sea is to be encouraged because it is healthy for the region’s longer term survival. The majors need to be drawing many more millions of barrels a day than they can get from small, inaccessible fields that now make up much of the North Sea. Their focus is on larger deposits in areas such as the Caspian Sea and West Africa.

There are calls for Shell to sell more assets to eager buyers, and for other majors to follow suit, a pattern effectively jump-started by BP’s sale of the huge Forties field to Apache in 2003. Jim Hannon, a partner in oil consultancy Hannon Westwood, says “this will be painful, but we have to do it”. It is easy to see why.

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