The development of the largest new field discovered in the UK North Sea for a decade has been approved today by the UK Oil & Gas Authority.
The Maersk Oil operated high pressure, high temperature Culzean field in the UK Central North Sea is expected to produce enough gas to meet 5% of total UK demand at peak production in 2020/21. Culzean is also the largest gas field sanctioned since East Brae in 1990.
Discovered in 2008 by Maersk Oil and its co-venturers, the gas condensate field has resources estimated at 250-300 million barrels of oil equivalent. Production is expected to start in 2019 and continue for at least 13 years, with plateau production of 60,000-90,000 barrels of oil equivalent per day.
Maersk Oil and its co-venturers, JX Nippon and BP (Britoil) are investing around £3bn in the development, with more than 50% committed to investments in the UK.
Over the projected life of the field, it is anticipated that £2.1bn in operating expenditure will be spent in the UK domestic market. The Culzean field aligns with the UK’s commitment to increased gas-fired electricity generation and is expected to support an estimated 6,000 UK jobs and create more than 400 direct jobs.
The Culzean development has benefited from the Cluster Area Allowance introduced by the UK Government as part of the 2015 Budget. The allowance supports the development of high pressure, high temperature projects – which typically have considerably higher capital costs – and encourages exploration and appraisal activity in the surrounding area or ‘cluster’.
Jakob Thomasen, Chief Executive, Maersk Oil, said, “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.”
The Chancellor of the Exchequer, George Osborne, 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 £3 billion investment comes on the back of massive government support for the sector.
Andy Samuel, Chief Executive, Oil & Gas Authority, said, ”This 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.
The Oil & Gas Authority has worked closely with Maersk Oil and HM Treasury on the development plans for the Culzean field, which will support many new contracts in the oil and gas supply chain across the UK.
Scottish Energy Minister Fergus Ewing also welcomed the Culzean announcement, but warned the UK government that more action is required to rescue the N. Sea oil and gas industry from the crude price slump, which last year saw exploration fall to a 20-year record low.
He 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.
“However, in order to ensure that we maximise the recovery of the remaining North Sea resources, it is vital that the Chancellor urgently consults on measures which support exploration – a commitment that the UK Government made in December 2014 but have yet to deliver any follow up action.
“The benefits from exploration not only boost future production, but will also be felt across the supply-chain and the wider economy.
“Last year North Sea exploration reached its lowest level in at least two decades, with only 14 explorations wells drilled, compared to 44 in 2008.
“It is critical that reforms to the regulatory and fiscal regimes applying in the North Sea are expedited and prioritised with a view to ensuring the economic viability of investment like this if we are realise the opportunities for development of the vast remaining resources in the North Sea.
“As Sir Ian Wood warned just last week the Treasury must open talks about the tax regime and the Chancellor must use his visit to the North-east to listen to the industry.
“We are extremely concerned that, as reported this weekend, 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. Since the both the UK and Scotland have objectives to maximise recovery, the premature cessation of production could be one of the most costly policy failures in the UK Government’s history due to the potential loss of future tax revenue.”