OIL majors have underlined the value they see in the North Sea amid fears of an exodus from the area.

Industry leaders have warned firms are set to slash investment in the UK North Sea in response to the recent hike in the windfall tax.

However, BP and Shell have made clear they see lots of potential in big fields they control in areas such as West of Shetland even if their tax bills are set to increase.

The Government plans to use the proceeds of the Energy Profits Levy to fund relief for consumers who are facing huge increases in their energy bills following the spike in oil and gas prices fuelled by Russia’s war on Ukraine.

BP and Shell, which are both big North Sea players, have underlined the scale of the resulting boost to energy firms’ earnings by posting record profits in recent days.

Shell made $39.9 billion (£33bn) profit from its global operations in 2022 compared with $19.3bn last time.

BP’s profits also more than doubled, to $27.7bn.

Both firms announced plans to increase pay outs to shareholders, who have shared distributions worth billions of dollars in recent months.

BP infuriated campaigners by saying it now plans to cut oil and gas production more slowly than previously expected, while supporting the transition to a cleaner energy system by investing in renewables.

Chief executive Bernard Looney insisted BP’s oil and gas output would help deliver the secure and affordable energy the world needs, in the context of the fallout from the war in Ukraine.

BP said it plans to retain some oil fields longer than expected under the revised approach, without providing details.

However, since Mr Looney took charge in February 2020, the company has made clear that the North Sea is a core area for its oil and gas business. The introduction of the windfall tax does not seem to have changed its view.

In a presentation to analysts following the company’s results announcement last week, Mr Looney said BP has some great opportunities in Europe, adding: “We have a strong oil and gas business in the North Sea.”

The head of BP’s oil and gas production business, Gordon Birrell, highlighted the importance of fields such as Clair Ridge West of Shetland in the presentation. He noted that BP has recently boosted returns on investment in Clair Ridge, which it brought onstream in 2018 with Shell. BP said then that 640 million barrels could be recovered from Clair Ridge, with production set to continue for decades.

Judging by last week’s update, that confidence remains intact.

“The Clair Ridge team are doing … great work sub-surface-wise, drilling-wise to develop the giant field West of Shetland,” enthused Mr Birrell to analysts, noting the work concerned resulted in increased productivity and efficiency.

The comments highlight ways in which oil firms have utilised advances in technology to improve the economics of North Sea operations.

The original Clair find was made in 1977 but the 300 million barrel first phase was only brought into production in 2005.

Shell has a 28% stake in Clair Ridge.

Mr Birrell also underlined the fact that the amount of kit now installed in the North Sea makes the basin attractive in terms of exploration. Finds made close to existing assets could be brought onstream relatively quickly and cheaply.

Mr Birrell said BP has “infrastructure-led” exploration opportunities, particularly in areas such as the North Sea and the Gulf of Mexico.

In the draft energy strategy released last month the Scottish Government downplayed the potential to make significant discoveries in the North Sea. It said there should be a presumption against exploration in the area on environmental grounds.

By contrast, the UK Government wants to encourage North Sea exploration to help reduce dependence on imports. It introduced a generous investment allowance for drilling and development work alongside the windfall tax. Firms can get a 91p tax saving for every pound they invest.

An update last week on an exploration well drilled by Shell with Deltic Energy boosted hopes there may still be lots to go for in the North Sea.

Deltic, a relative minnow in the industry, said the Pensacola well had made what looked to be one of the largest natural gas discoveries in the Southern North Sea in over a decade.

Chief executive Graham Swindells said the Pensacola discovery could open a new geological play in the mature North Sea and highlights the potential to make more big discoveries off the UK.

Shell and Deltic are preparing to drill a well on the Selene prospect.

Following Shell’s results announcement new chief executive Wael Sawan hammered home his belief in the strategy developed by his predecessor Ben van Beurden, in which the North Sea plays an important role.

Mr van Beurden decided the North Sea should be one of the core areas on which the group should focus oil and gas investment. Like BP it expects to use the cash generated to fund investment in the transition alongside big payouts to investors.

“I fundamentally believe that the world needs a balanced energy transition,” Mr Sawan told reporters.

He said the volatility seen in 2022 reflected the reality of under-investing in the energy system, following big cuts in Russian exports.

Mr Sawan told reporters the high-grading of Shell’s portfolio to the “core countries that matter in terms of the value they create” has been a key part of the firm’s strategy.

He added: “We continue to believe in the significant potential for energy investments here in the UK.”

Mr Sawan noted that Shell is currently completing major oil and gas projects in the UK citing the Jackdaw gas field development which it approved in July last year, two months after the windfall tax was introduced. He said Jackdaw was one of the opportunities Shell saw to bring domestic production to the UK in future.

But campaigners may take heart from clear indications that Shell’s new management team does not intend to resurrect the firm’s controversial plans to develop the giant Cambo find off Shetland. These were shelved in 2021 amid Shell’s concerns about the field’s economics and the prospect of delays.

Israeli-owned Ithaca Energy hopes to bring Cambo into production and has said it could make a Final Investment Decision (FID) in respect of a development this year. It acquired a stake in Cambo through the $1.5bn takeover of Siccar Point Energy last year in a move that signalled huge faith in the commercial potential of the field. But this looks like a more challenging prospect following Shell’s update last week.

Shell’s new chief financial officer Sinead Gorman told reporters: “Cambo does not make sense for us in terms of an FID, in terms of the economics.”

Ithaca also has a stake in the giant Rosebank field off Shetland which Norwegian oil giant Equinor hopes to develop.

Friends of the Earth Scotland complained last week that Equinor could get investment allowances worth more than £500m to develop Rosebank under the scheme introduced by the UK Government.

Campaigners’ calls for the allowance to be axed only intensified last week when Equinor set an industry record by posting a $75bn annual profit.