Bloomberg News

Total, Statoil Spearhead $38 Billion North Sea Investment

October 12, 2011

(Updates with comment from Wood Mackenzie in 10th paragraph.)

Oct. 12 (Bloomberg) -- Total SA, Statoil ASA and Chevron Corp. are spearheading a $38.2 billion investment drive in the U.K. North Sea as producers target the largest number of fields since 1995, according to Wood Mackenzie Consultants Ltd.

The explorers are targeting 50 deposits with an estimated 2 billion barrels of resources, which will account for a third of the nation’s expected output by 2019, the Edinburgh, Scotland- based consultant said today in a report.

“The pipeline of new projects and developments likely to go ahead offshore U.K. is looking healthy,” Wood Mackenzie said in the report. “However, maintaining this pipeline at current levels will require significant exploration success and continued investment.”

Explorers are taking advantage of available infrastructure and proximity to markets to ramp up investment in the North Sea. Statoil plans to invest about $9.6 billion in the Mariner and Bressay fields, Total is focusing on the $3.9 billion Laggan/Tormore development west of the Shetland Islands and Chevron is leading the Rosebank project.

“We have never been as active as today in the U.K. and it’s true also for the North Sea,” said Patrice de Vivies, senior vice president for Northern Europe at Total, the largest investor in U.K. offshore exploration and production.

Record Drop

Increased investment comes after the U.K.’s total oil output fell at the fastest quarterly pace in the three months ended June since 1995, according to the Department of Energy and Climate Change.

U.K. North Sea oil production fell below 1 million barrels a day in June for the first time in 30 years, down from a peak of 2.7 million in 1999, said Evolution Securities Ltd.

“The U.K. North Sea is in decline and quite a steep decline,” said Graham Stewart, chief executive officer of Faroe Petroleum Plc, an independent U.K. explorer. Even so, falling output will be offset by smaller field developments as “it’s not over in the U.K., far from it,” he said.

Higher oil investment in the U.K. North Sea is reducing the rate of natural production decline to 6 percent from as much as 20 percent, according to Total.

The number of smaller explorers moving forward with new developments in the North Sea has climbed by 50 percent from 2009, Wood Mackenzie said. “The current probable development portfolio contains the largest number of fields since 1995,” it said.

Acquisitions

Rising oil prices and cheaper equity valuations are already spurring acquisitions of U.K. North Sea explorers. Premier Oil Plc this month agreed to buy EnCore Oil Plc for $340 million, while Apache Corp. bought some local assets from Exxon Mobil Corp. for $1.75 billion.

“The number of recent discoveries made in the U.K. sector does prove that there is still scope for growth,” said Martin Rune Pedersen, managing director of the U.K. division of Maersk Oil, a unit of Denmark’s biggest company. “New technology is the key to accessing more volumes.”

This week, EON AG of Germany announced the newest discovery in the U.K. North Sea at the Tolmount license with partner Dana Petroleum E&P. Outside the U.K. continental shelf, Statoil ASA and Lundin Petroleum AB have made what could be Norway’s third- largest oil discovery at the Aldous-Avaldsnes field.

“There is a continued opportunity in the North Sea, particularly for the independent players,” said Rick Clark, a finance director at Aberdeen-based field services company Reservoir Group. “There is existing infrastructure that independent companies are able to use at relatively low costs.”

--Editors: Stephen Cunningham, Alex Devine

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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