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Threat to North Sea exploration

The last frontier of oil exploration in the North Sea could be rendered off limits to smaller oil explorers ­following the BP Deepwater ­Horizon crisis, according to the head of the company behind the biggest North Sea ­discovery in a decade.

Alan Booth, chief executive of London-based EnCore Oil, which leads the consortium that has just discovered 300 million barrels of oil in the Catcher field in the central North Sea, warned that either tighter regulation or higher ­insurance premiums could make it impossible for smaller exploration companies to participate in the deep waters to the west of Shetland.

Booth said: “Clearly the regulatory authorities are going to look very closely at who the operators are in deep water. If it can happen to BP, frankly it can happen to anyone. Do you want junior operators out in the west of Shetland? BP has a balance sheet to manage the issue. The focus will be on those that don’t.”

It comes at a time when companies of all sizes are stepping up activities in the area as “easier”deposits dwindle elsewhere. With smaller players like Dana Petroleum and Hurricane Exploration already active in the area next to majors BP, Chevron and Total, the UK Government last week announced 57 pending licence applications for the west of Shetland as part of its 26th oil and gas licensing round.

The area is thought to contain as much as a fifth of the remaining hydrocarbons in UK waters. With much of it involving wells as deep as those in the Gulf of Mexico, but in more treacherous waters, it would be difficult for any oil and gas specialist to rule out a similar crisis completely. Deepwater Horizon, which sank after an explosion that killed 11 workers, is spewing out around 60,000 barrels of oil a day and is expected to cost BP about $70 billion (£47bn). Having seen 55% wiped off its share price, the company is being touted as a takeover target.

Malcolm Webb of industry association Oil & Gas UK nevertheless said that it would be a “disaster” if smaller explorers were not able to participate in deep UK waters. He pointed to the cross-industry task force that had been set up to look at the UK’s regulatory and insurance regimes to ensure they were still suitable, but said that UK regulation had been much tighter than the US ever since the Piper Alpha disaster.

“Until we have seen the official report into Deepwater Horizon, it would be very premature to say that the Gulf of Mexico means that drilling west of Shetland is the province of the big companies only,” he said.

Energy Secretary Chris Huhne was quoted last month saying that the UK regime was “fit for purpose”, but announced a doubling of ­environmental inspections and that the ­Department of Energy and Climate Change (DECC) was considering raising the level of indemnity and insurance that companies require to operate in UK deep waters.

A DECC spokeswoman said: “The UK Continental shelf remains an important hub for investment and will continue to be at the heart of the UK’s energy security for years to come.

“The Government is keen to encourage the development of our indigenous oil and gas resources and recognises the importance of providing a stable and fair tax and regulatory regime.”

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