Chevron, the US oil group, has raised doubts about whether it will proceed with its £6bn Rosebank oil project west of the Shetland Islands, in a move that will send a chill through the North Sea oil industry.
Any decision by Chevron to pull out of Rosebank, one of the biggest oil developments in UK waters, would be a blow for hopes of reviving oil production in the North Sea.
In a statement, Chevron said the project “does not currently offer an economic value proposition that justifies proceeding with an investment of this magnitude”. It said it had conveyed that message to the UK government.
Chevron said it was working with its partners – OMV of Austria and Denmark’s Dong Exploration and Production – to find ways of strengthening the project economics.
The company insisted, however, that it had not suspended Rosebank, and remained in the front-end engineering and design stage of the project with a final investment decision planned for next year.
Rosebank, which had an initial pricetag of £6bn, has fallen victim to rising costs in the oil industry, which have hit offshore projects especially hard. Equipment, labour and technical services are all more expensive than when the project was first proposed.
Cost was also an issue for Statoil, the Norwegian oil company, when it announced this week that it was delaying a decision on developing its Bressay heavy oil field in the UK sector of the North Sea. Bressay was estimated to cost $6bn-$7bn, making it one of the largest oil investments in the UK in decades. Statoil said it would try to simplify the project to reduce cost.
The area west of Shetland, where the Rosebank field was discovered in 2004, is virtually the only part of UK waters where oil and gas reserves have yet to be exploited.
Located on the very edge of the UK continental shelf and closer to the north Atlantic than the North Sea, it is considered one of the most challenging environments for oil companies, even those such as Chevron with plenty of experience of working offshore.
Rosebank is located about 130km northwest of the Shetland Islands in water depths of about 1,100m. It is estimated to contain 240m barrels of oil. It has been key to hopes for a revival of UK oil production, which has fallen by 38 per cent over the past three years, costing the UK Treasury up to £6bn in lower tax receipts, according to industry estimates.
Some 41 billion barrels of oil and gas have already been produced from the UK continental shelf, and 20 billion or more could still be produced. But the easy oil has all gone: the average size of new discoveries has dropped significantly, while the technical complexity of the remaining reserves is rising.
The UK government has sought to encourage investment with tax breaks that have been introduced by George Osborne, the chancellor, since a £2bn tax raid on the sector in 2011. One of these was a £3bn allowance for large and deep fields designed in part to open up West of Shetland. Such moves have meant a record £13.5bn will have been invested in the North Sea this year.
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