Production approved for Maersk Oil's Culzean gas field

image copyrightMaersk

Production on the largest new oil and gas field to have been discovered in the North Sea for a decade has been approved by the UK Oil & Gas Authority.

The Culzean field is expected to produce enough gas to meet 5% of the UK's needs when it reaches peak production.

It holds reserves equivalent to about a quarter of a billion barrels of oil.

Maersk Oil said its plans to develop the field were boosted by tax changes announced recently by the chancellor.

The company said the project is expected to support an estimated 6,000 UK jobs and create more than 400 direct jobs.

The field was discovered in 2008. Gas is expected to start flowing from the development in 2019 and continue for at least 13 years with peak production of 60,000-90,000 barrels per day.

Analysis by Douglas Fraser, BBC Scotland business and economy editor

Three billion pounds of investment and 400 direct-employed British jobs: a lot of buck for not so much employment bang. The Culzean field is top heavy with the money required to unlock high-pressure, high-temperature (HPHT) gas.

The economic impact is reduced by two other factors: half of that investment spend is not to be made in Britain. Danish-owned Maersk has ordered the gas platform topsides - three of them - from Singapore. The UK gets to fabricate the jackets (the legs for the topsides), the bridges between them, the power generation module and the flare stack. Aberdeen is getting some of that work. So are firms in Hartlepool and Lowestoft.

And the tax revenue will be reduced by a range of incentives. HPHT technology was already given its own tax break, even before other fiscal carrots were dangled in the March Budget.

Does this suggest that the worst of the industry downturn is over? No. Culzean is a gas field, and gas has not fallen as sharply as the oil price. And having been discovered in 2008, there was a momentum towards investment which was hard to stop as the industry slammed the brakes on investment. The key decisions for Culzean equipment were made in May last year, when prices were still riding high.

From 2019, Culzean will help boost output from the North Sea and it should propel Maersk into the top five UK producers.

There are other such fields being readied. But they're not replacing the depleting reserves. Only last week, Maersk joined the operators planning to close down platforms.

The Janice field, which began producing in the late 1990s is now down to only around 7000 barrels per day. The company has applied for regulatory permission to close down the platform, with a likely loss of 200 jobs. What happens to the cluster of fields - Janice, James and Affleck - is yet to be made clear, but it seems likely two of them will shut down.

Chief executive of Maersk Oil, Jakob Thomasen, said: "Culzean is an important development for the UK and also for Maersk Oil and our co-venturers.

"We are pleased the field will support UK economic growth as well as extend understanding of HPHT development.

"Culzean is the latest in a series of large investments by Maersk Oil in the North Sea where we are active in Denmark, Norway and the UK - reflecting our commitment to the future of the North Sea region."

Andy Samuel, chief executive of the Oil & Gas Authority, said: "Maersk Oil and partners' £3bn investment to develop the Culzean discovery is excellent news for the UK during a period when the decline in global oil prices has created difficult operating conditions for this critical sector of our economy."

News of the approval was also welcomed by Chancellor George Osborne, who visited Aberdeen.

He said: "Today's announcement sends a clear signal that the North Sea is open for business. Already the UK's oil and gas industry supports hundreds of thousands of jobs across the country and this £3bn investment comes on the back of massive government support for the sector."

Scotland's Energy Minister Fergus Ewing said: "Development of the Culzean field brings welcome investment, jobs and supply chain opportunities and, as the largest new field in a decade, it also demonstrates that there remain considerable opportunities to extend production for decades to come."

image copyrightMaersk

However, he added: "We are extremely concerned that there are a large number of fields which may be forced to stop production prematurely - when there is a great deal of oil and or gas to be extracted."

Deirdre Michie, chief executive of industry body Oil and Gas UK, said "Oil and Gas UK welcomes the development approval of the largest new field discovered in the UK North Sea in more than a decade.

"This investment by Maersk Oil and its co-venturers is very encouraging at this challenging time for the industry and reinforces the fact that that the UK Continental Shelf continues to have much to offer."

More on this story

Related Internet Links

The BBC is not responsible for the content of external sites.