BP shrugs off tax woes to invest in UK's North Sea

By Eric Watkins
BP PLC underlined its commitment to the UK's North Sea by announcing a plan to invest £3 billion to redevelop its Schiehallion and Loyal oil fields west of the Shetland Islands.

BP’s decision, described by one company executive as “an important milestone” for the firm, comes despite the recently imposed sharp uptick in taxes levied by the British government on oil and gas production in the country.

"This important milestone is consistent with BP's strategy to sustain a material, high quality business in the North Sea region," said Trevor Garlick, BP regional president for the North Sea.

BP said that Schiehallion and Loyal have produced nearly 400 million bbl of oil since production started in 1998 and that an estimated 450 million bbl of resource is still available.

“The investment of circa £3 billion in the re-development of the fields will take production out to 2035 and possibly beyond,” BP said.

BP said it has developed a strong track record west of Shetland over the past two decades and will use the latest technology to maximize recovery from these fields.

It said the Quad 204 project involves replacing the existing Schiehallion Floating, Production, Storage and Offloading vessel with a new FPSO which is scheduled to be installed in 2015.

The new vessel will be 270 m long by 52 m wide and able to process and export up to 130,000 b/d of oil, and store more than 1 million bbl of oil.

BP said there will also be “a major investment” in the upgrading and replacement of the subsea facilities to enable the full development of the reserves.

The new facilities are scheduled to commence production in 2016.

BP’s investment decision came just four months after the UK’s Treasury raised the supplementary tax on oil and gas sold at prices exceeding $75/bbl to 32% from 20% -- a rise that energy companies warned would jeopardize their investment plans.

However, Norway’s state-owned Statoil has since revived its Mariner project in the North Sea while Centrica has reopened a large gas field that was deliberately left dormant after the tax increase.

BP acknowledged that the tax change would affect the value of the project, but it said the decision was justified by the size and scale of the development.

"Like all investments in the UK continental shelf the value in the project for the companies involved has been reduced because of the tax change," said BP. "The tax increase certainly didn't make the decision any easier, however the size and scale of this development means we are able to progress."

Justine Greening, the economic secretary to the UK’s Treasury, welcomed the “good news for the UK,” which she said showed that the “North Sea basin remains an attractive area for significant levels of new investment.”

BP will have a 36.3% stake in the new FPSO, along with Shell 36.3%, Hess Ltd 12.90%, Statoil (UK) Ltd 4.84%, OMV (UK) Ltd. 4.84% and Murphy Petroleum 4.84%.

Contact Eric Watkins at hippalus@yahoo.com
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