Accessibility links

Low
graphics

Skip
to content

Skip
to local navigation

Skip
to bbc.co.uk navigation

Skip
to bbc.co.uk search

Help

Accessibility
Help

Access keys
help

BBC News Updated every
minute of every day

BBC NEWS CHANNEL

News
Front Page

Africa

Americas

Asia-Pacific

Europe

Middle East

South Asia

UK

England

Northern
Ireland

Scotland

Wales

Education

Magazine

UK
election

Business

Health

Science &
Environment

Technology

Entertainment

Also in the
news

-----------------

Video and
Audio

-----------------

Programmes

Have Your
Say

In Pictures

Country
Profiles

Special Reports

Related BBC sites

Sport

Weather

On
This Day

Editors' Blog

BBC World Service

Page last updated at 09:17 GMT,
Wednesday, 4 June 2008 10:17 UK

E-mail this to a friend

Printable version

Oil reserves 'will last decades'

By Hayley Millar

Business correspondent, BBC
Scotland

The North Sea has almost as much oil left as has already been
extracted, a BBC Scotland investigation has been told.

Experts believe between 25 and 30 billion barrels could still
be recovered over the next 40 years.

Calculating oil reserves is not an exact science and this fact
has made it difficult over the years to weigh up the true wealth of
oil beneath the North Sea.

Oil producers have tended to play down their oil reserves. The
markets do not cope well with shocks, so companies take the view
that it is better to pleasantly surprise than disappoint them.

In 2004, Shell stunned shareholders when it revised its proven
oil and gas reserves, slimming the figure by 20%. The revelation had
an instant impact on the company's share price and has served as a
lesson to the industry ever since.

The first minister and former oil economist Alex Salmond told me
that there was another motivation for oil companies' reticence.

He said: "If oil companies said 'look we've got lots of reserves
in the future', the immediate response of government would be to
stick taxation up. So there was a kind of incentive for the big
companies to underplay the significance of the province."

That is hardly surprising - since the late 1960s, the oil
companies have paid £140bn in taxation to the Treasury.

We're bringing on four new fields this
year. We're talking hundreds of millions of pounds

John Gallagher
Shell

That is a pretty big disincentive. No wonder there is such
divergence over how much oil is left in the North Sea.

Sir Bernard Ingham, who was press secretary in the Department of
Energy when North Sea oil came ashore, admitted that government
negotiations with the oil companies always boiled down to the same
thing - taxation.

As he put it: "The whole political calculation is how much brass
can you get out of North Sea oil without driving the oil companies
away."

The one thing that I did not expect to find in my investigation
was that the proven reserves on some of the region's oldest fields
are in fact rising.

The Forties Field, one of the biggest and most iconic, is still
producing oil 33 years after the first oil was pumped ashore.

Higher costs

Five years ago, BP sold it to the Texas-based oil exploration and
production company Apache. Since then Apache has invested $2bn in
the field's sub sea network, its platforms and in re-evaluating how
much oil is in the field.

According to Jim House, CEO of Apache, flow rates from the
Forties field have increased and the amount of recoverable oil has
also increased.

He said: "Forties was definitely showing her age when Apache took
it. At the time when it was sold, pre-developed reserved were in the
region of 150 million barrels. We ended last year with 200 million
barrels on our books."

Advertisement

Preview of the BBC Scotland investigation

The downside to operating off the coast of Scotland has always
been the relatively higher cost and, as the region matures, that
cost factor is becoming more fundamental for the oil majors.

Shell has also been selling off some of its core assets in the
North Sea to newer and more aggressive companies like Fairfield
Energy.

Through shooting new seismic surveys and drilling new wells these
new players are extending the life of North Sea oil fields.

John Gallagher, from Shell in Aberdeen, said his company was
still committed to the area.

He said: "We're bringing on four new fields this year. We're
talking hundreds of millions of pounds.

"The plant rejuvenation work that we're doing is hundreds of
millions of pounds and the work we're doing cross-border - linking
up Norway and the UK, which is a growing trend in our industry - is
again hundreds of millions of pounds."

Huge gamble

The same high oil price that makes it harder for you and me to
drive to the shops on a whim is making it easier for companies to
take a gamble on previously undeveloped parts of the North Sea.

With a simple oil well costing $22m to drill, exploration
companies are taking a huge gamble.

Canadian oil exploration company Oilexco last year drilled 39 out
of 140 exploration and appraisal wells in the North Sea, despite
rising costs.

Its chief executive officer, Arthur Millholland, said "In 2004 we
were paying approximately $55,000 a day for a drilling rig.

"Today we're paying $350,000 a day. So even though the price of
oil today is higher than it was in 2004, our costs of doing business
here have increased just as dramatically."

It still seems to be worth their while staying in the North Sea,
despite the high costs.

What I have seen in my investigation is an industry that is
better placed to shoulder these costs. Smaller companies with lower
overheads can go after smaller pockets of oil and still make a
decent profit.

How long will North Sea oil last? The answer to that depends on
many things, including market conditions, future government
initiatives and constant technological improvements.

Technology alone is playing its part in extending the activity in
the North Sea. John Forrest, Talisman Energy's general manager for
the Flotta Catchment Area, said the company was now drilling wells
that they were unable to drill five to 10 years ago.

World-class

He said: "We're bringing on fields that we've known were there
for quite a long time but they just weren't economic or we didn't
have the technologies. We recently brought on a field without
drilling any more wells. We just had better technology."

The Talisman-owned Claymore platform is expected to keep pumping
oil for another 30 years.

Mr Forrest said: "We foresee an economic life at that
installation until the late 2030s and that's with the ideas we
currently have. We think other innovations will come along that will
almost certainly extend that."

The North Sea has many things in its favour. It has world-class
geology which makes it attractive to those wanting to harvest its
rich reservoirs.

Compared with many of the world's oil producing regions, it is
governed by a relatively stable political and economic regime.

The market price of oil is a much more volatile factor, but at
current prices the oil that still lies beneath the North Sea is
becoming more and more valuable every day.

BBC Scotland's journalists are focusing on the high price
of oil, and what this means for the industry in the North Sea, this
week.

Hayley Miller will present a special hour-long documentary
- Truth, Lies, Scotland and Oil - at 2240 BST on Wednesday on BBC
One Scotland.

E-mail this to a friend

Printable version

Bookmark with:

Delicious

Digg

reddit

Facebook

StumbleUpon

What are
these?

THE PRICE OF OIL

NEWS

Shell profits
up 50% on oil price

BP doubles
profit to hit $5.6bn

China oil
demand is 'astonishing'

BP to explore
for oil in Brazil

ANALYSIS

Rollercoaster
ride
An
extraordinary year of volatility on the oil markets

Middle East
feels price pinch

Q&A:
Volatile oil prices

What's it
like being a trader?

LATEST OIL PRICES

Brent
crude oil
Check
the latest prices from the London market

West
Texas Intermediate crude

RELATED INTERNET LINKS

Triton
Group

Apache
Corporation

Fairfield
Energy

Shell

Talisman
Energy

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

TOP
SCOTLAND STORIES

LIVE:
Scotland's general election results

Poll
predicts UK hung parliament

Teachers
make 'ditch or fix' plea

MOST
POPULAR STORIES NOW

SHARED

READ

WATCHED/LISTENED

Neanderthal
genes 'survive in us'

Nigeria
swears in new president

Anti-gay
activist in sex scandal

Women under
50 'face stress risk'

Merkel urges
support for Greece

Most
popular now, in detail

SHARED

READ

WATCHED/LISTENED

Tories
'just short of majority'

Neanderthal
genes 'survive in us'

Q&A:
Election results

US markets
plunge on debt concern

Election
2010: At a glance

Voters
turned away as polls close

Russian
forces storm oil tanker

Anti-gay
activist in sex scandal

Versace
wins $20m compensation

Election
seat calculator

Most
popular now, in detail

SHARED

READ

WATCHED/LISTENED

Parties surprised by exit poll

Pakistan's 92 year-old British teacher

Apology to turned away voters

Exit poll: Tories to fall 19 short of majority

BNP candidate and Asian men clash

Remembering VE Day celebrations

Images show volcano intensifying

Election 2010 - BBC News Live

Long queues at polling stations

Mission to map Mount Rushmore in 3D

Most
popular now, in detail

FEATURES, VIEWS, ANALYSIS

It's
quiz time!

The man who wed his cat, and other stories
this week

Biswas
on India

Media bloodlust over Mumbai death sentence

Sticky
business

Fallout from Gulf oil spill washes on to
political shores

Skip to
top

PRODUCTS & SERVICES

E-mail
news

Mobiles

Alerts

News
feeds

Podcasts

Search term:

Explore the BBC

Home

Popular links

Doctor Who

Election 2010

Formula 1

A to F

BBC iPlayer

CBBC

CBeebies

Food

H to L

Health

History

Learning

Local & Nations

M to Sc

Music

News

Radio

Science & Nature

Sp to W

Sport

TV

Weather

A whole lot more from the BBC

Back
to start of navigation

Site links

News Sources

About BBC News

BBC links

About the BBC

BBC Help

Contact Us

Accessibility Help

Terms of Use

Privacy & Cookies

Advertise With
Us

© MMX

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

This page is best viewed in an up-to-date web browser with style
sheets (CSS) enabled. While you will be able to view the content of this page in
your current browser, you will not be able to get the full visual experience.
Please consider upgrading your browser software or enabling style sheets (CSS)
if you are able to do so.