The Scotsman: Oil giants review North Sea investment: “Oil & gas industry workers union Amicus has already written to energy minister Malcolm Wicks to request action against Shell…”: Wednesday 21 December 2005
DEPUTY CITY EDITOR
EXXON-Mobil and BP have become the latest oil & gas giants to launch a review of their future North Sea investment programmes - the latest signs that overall activity could slump sharply in 2007.
Both companies confirmed yesterday that they would be conducting a wide-spread review of future exploration programmes, blaming the recent shock tax hike on production by Chancellor Gordon Brown for their decisions.
Exxon-Mobil - the world's biggest oil firm - said it would look at all its projects, and would report shortly on its findings. The news comes after The Scotsman revealed that Shell has already made the decision to cut a key tender for future North Sea drilling rigs by a third.
BP said it would be reviewing its "total investment portfolio" - which amounted to spending of around £1.1 billion in 2005. It said it had pre-contracted out the bulk of its work for 2006, but the rest of next year's activity and that of 2007 could be reduced.
However, the company was keen to report that it was not all bad news. Dave Blackwood, BP's director for North Sea operations, announced the first gas production from the Rhum field - the UK's largest undeveloped gas project - nearly 30 years after it was discovered.
"Rhum has presented a unique set of challenges," he said. "[But] these challenges have been overcome in order to maximise investment in existing infrastructure."
But the investment into Rhum was made before the latest tax intervention of the Chancellor. Brown used his pre-budget report earlier this month to double the corporate tax rate on North Sea oil & gas production to 20 per cent, bringing the total tax rate to 50 per cent. The move will net him more than £2bn a year from the oil industry from 2006-7.
Exxon-Mobil conceded the Chancellor's argument that "oil prices are high", but added: "In an historical price environment [the tax hike] could result in many projects becoming uneconomic and unattractive to investors and shorten the economic life of existing fields."
Another company that is expected to suffer from the tax hike is Dana Petroleum (see panel), which off-sets its high-risk exploration programmes with steady production operations in the North Sea.
It recently revealed that its oil & gas production would reach a record 30,000 barrels of oil equivalent per day - a record high for the company - lifting its shares. The group has so far been unusual in that it has not commented on the hike, but analysts were in no doubt of the overall impact.
Richard Slape, an oil & gas analyst at Seymour Pierce, said: "Dana cannot get out of the North Sea - its the only place with big cash for them.
"But the tax changes reduces the rate of return on new projects. In the world, there are only so many rigs, so much capital. Some North Sea projects will have to be cancelled or delayed - it is inevitable."
Oil & gas industry workers union Amicus has already written to energy minister Malcolm Wicks to request action against Shell, although the Croydon North MP could not be reached last night for a response.
The Department of Trade and Industry imposed new rules earlier this year to try to reduce the number of inactive or fallow fields, encouraging oil & gas companies to invest or divest.
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