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Oil price boom sparks new North Sea gold rush

Oil price boom sparks new North Sea gold rush

Last Updated: 12:27am BST 08/06/2008



With oil prices skyrocketing, companies have decided it is worthwhile investing in technology, reports Russell Hotten

The North Sea is set for a second oil boom as record prices open up reserves previously regarded as too expensive to exploit.

  Aberdeen set to be the new Dallas as the oil price boom sparks new North Sea gold rush
Aberdeen is set to be the new Dallas as the second 
North Sea oil boom gets underway

Oil & Gas UK (O&GUK), which represents North Sea operators, estimates that there are still about 25bn barrels of crude under the seabed, paving the way for producers to earn billions of pounds in profit.

In the 35 years since crude was first recovered from the North Sea, about 37bn barrels of oil and gas have come ashore, giving the UK self-sufficiency in energy and making the industry the biggest single contributor to tax revenues.

Matthew Farrow, head of energy and environment at the CBI, said: “Our members keep saying that there is still plenty of stuff out there. The tricky thing is that they’ve got all the easy stuff. But how do they get to the hard stuff?”

To make the exploration and production economical, the industry needs a high oil price. And it has certainly got that. At $130 a barrel a number of projects became worthwhile, sparking a surge in activity.

O&GUK’s Sally Fraser: said “You can’t get a hotel room in Aberdeen these days. You have to book far in advance.”

But it could take a further rise in the oil price to make some of the more complicated projects profitable.

Ms Fraser said: “There is already a lot of technology around to get into difficult places, but it is used onshore. The problem is trying to utilise this technology in the North Sea, where the technical challenge is far more difficult.”

The organisation estimates that about £30bn of investment in the North Sea is needed over the next 10 years to satisfy the oil and gas industry’s existing plans for exploration and production.

Along with rises in the oil price, the cost of support services is soaring. The major oil companies have suffered a surge in equipment and labour costs.

For a North Sea operator, the cost of hiring a semi-submersible rig in 2005 was $13,000 a day. The costs this year are averaging $435,000 a day.

Analysts say that if the Government wants to encourage the North Sea operators to exploit the remaining reserves, it must do more to cushion these rising costs. And that means changing the tax regime.

The Treasury takes about 75p in the £1 off the oil companies operating on most fields. Petroleum Revenue Tax is 50 per cent, leaving firms with 50p. On this they are charging 30 per cent in corporation tax and a 20 per cent supplementary charge. The Government has already altered the tax structure to encourage investment in new fields. But it will not be enough to make it worthwhile to exploit a lot of the remaining oil.

Fraser said that a lot of the current oil wells are abandoned once about 50 per cent-60 per cent of the crude has been pumped. “A bit more technology and a bit more incentive, and these wells might still have life.”

Professor Peter Odell, of Erasmus University in the Netherlands, believes that there could be 300 fields that remain undeveloped in the North Sea.

His most optimistic assessment is that these will contain 30bn barrels, a higher estimate than O&GUK. “There are still parts of UK continental shelf that have never been examined at all in any great depth,” said the professor.

But for analysts, dealing in the day to day realities of the oil price, speculation about what “could be” are irrelevant. News that there could more oil left in the North Sea than first thought will have no impact on the market.

Damian Cox, senior energy analyst said: “The oil is out there, but is it really likely they can pump it at a profit? I’ll believe it when I see it.”

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