REGULATORS have approved plans to develop two North Sea fields which will involve around £400 million investment in total as interest in the area increases among a range of oil and gas firms and financiers.
The Oil and Gas Authority gave the green light to oil majors BP and Shell to bring the 20 million barrel Alligin oil field into production around 80 miles west of Shetland.
Read more: West of Shetland in focus for BP after oil giant quadruples profits
Zennor Petroleum, a relatively small independent, won consent for its plan to develop the Finlaggan field 120 miles north east of Aberdeen. The Surrey-based firm expects to recover 26 million barrels gas and condensate liquid from the field.
With Alligin and Finlaggan expected to cost around £230m and £170m respectively, the projects reflect confidence in the commercial prospects for North Sea developments as the industry emerges from a long downturn.
Read more: North Sea oil and gas industry to generate £10bn surplus this year
The OGA said the developments would help maximise the recovery of the North Sea’s reserves.
The authority was formed amid the official effort to help the North Sea oil and gas industry respond to the huge challenges posed by the slump in the crude price between summer 2014 and early 2016.
Oil and gas firms slashed spending in response provoking fears that millions of barrels of resources lying in discoveries that had not been developed could be squandered.
The rally in the crude price since late 2016, combined with the effect of deep cost-cutting amid the downturn, has encouraged firms to invest in North Sea developments.
The Wood Mackenzie consultancy said 12 North Sea development projects have been approved by operators this year. These will target 390 million barrels oil equivalent reserves and involve around £3bn total investment.
Read more: Shell provides fresh boost for North Sea oil and gas industry
Industry body Oil & Gas UK noted the OGA has approved nine of these North Sea projects so far.
"This is the same amount as the last three years combined, with more expected to be announced in the coming months," said its UK upstream policy director Mike Tholen.
The plans approved yesterday rely on making the most of production infrastructure in place in the North Sea, in a way encouraged by the OGA.
BP and Shell plan to link Alligin to the huge Glen Lyon floating production facility they installed in 2016 under plans to squeeze a further 450 million barrels from the bumper Schiehallion and Loyal fields off Shetland.
The head of BP’s North Sea business Ariel Flores said: “Alligin is part of our advantaged oil story, rescuing stranded reserves and tying them back into existing infrastructure.”
He said subsea tiebacks like Alligin complement BP’s major start-ups and underpinned its commitment to the North Sea.
Independents such as Zennor are playing an important role in the North Sea, by investing in fields that may not interest bigger fish.
Finlaggan was discovered by ConocoPhillips in 2005.
Zennor is one of a number of niche players that won backing for North Sea growth drives from private equity firms that decided the downturn had created opportunities.
The price of North Sea assets and services dropped amid cuts in exploration and development activity.
The Kerogen private equity firm acquired a majority stake in Zennor in 2015. In 2016 Kerogen invested in Hurricane Energy, which has made big finds off Shetland.
Read more: North Sea deal shows financiers see big potential in UK assets
Zennor has secured £170 million debt to fund the Finlaggan development from banks such as Barclays. Debt was hard to get in the North Sea during the downturn.
It plans to tie Finlaggan in to the ConocoPhillips-operated Britannia platform, with first output expected late in 2020. Zennor recently acquired an 8.97% stake in Britannia from Japan’s Mitsui.
BP expects to bring Alligin into production in 2020.
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