Plans by Aberdeen-based oil explorer EnQuest to press ahead with a £4 billion investment in the giant Kraken project have been hailed as “unequivocal evidence” of the industry’s faith in the North Sea’s future.
EnQuest, which was spun off from energy services group Petrofac in 2010, said the development, east of Shetland, is the largest investment announced in the UK North Sea this year and is set to support about 20,000 jobs during the construction phase.
Kraken comprises two heavy oil fields and is estimated to hold about 137 million barrels. Production is expected to begin in 2016.
The development was approved by the UK Department of Energy & Climate Change today and Chancellor George Osborne said the investment was made possible by tax relief through the “ultra heavy oil field allowance”, which allows companies to claim tax relief on up to £800m of their profits.
Osborne added: “This is a big investment that will create jobs and boost the British economic plan. It is also evidence that our efforts to create a competitive tax regime that gets the most oil and gas out of the North Sea are working.”
The field will support about 1,000 operational jobs a year over its 25-year lifespan and production is expected to peak at more than 50,000 barrels a day.
EnQuest chief executive Amjad Bseisu said: “Companies like EnQuest are the future of the North Sea – it is only by combining our skills and expertise with fiscal incentives, such as heavy oil allowances, that really substantial projects like Kraken are possible.
“Kraken is a transformational project for EnQuest and we are delighted to be able to proceed with it – working with the government and our partners to maximise the extraction of approximately 140 million barrels of oil in this field, over its 25-year long life.”
Of the £4bn capital and operational investment, about 80 per cent will be spent in the UK. The contract for a floating production, storage and offloading (FPSO) vessel, with capacity for 600,000 barrels of oil, is set to be awarded to offshore services group Bumi Armada.
Hassan Basma, chief executive of the Malaysian firm, said: “We expect that the heavy oil production technology applied in the Kraken FPSO will unlock similar heavy oil reserves in the North Sea and other parts of the world.”
Trade body Oil & Gas UK said Kraken highlighted the opportunities that remain for Scotland’s oil sector, while Scottish energy minister Fergus Ewing said the deal was “unequivocal evidence of the faith that the oil and gas industry has in the future of the North Sea as an oil producing province”.
He added: “With up to 24 billion recoverable barrels with a potential wholesale value of £1.5 trillion, more than half of the resources in the North Sea by value, still to be extracted, it is clear that the industry will make an important contribution to the Scottish economy for decades to come.”
EnQuest also said today that its average production from January to October was 7.2 per cent higher than a year ago, and it expects to produce up to 24,500 barrels a day for the full year.
The firm is the operator of Kraken, its sixth North Sea hub, and owns 60 per cent of the project. Edinburgh-based Cairn Energy has 25 per cent and First Oil holds the rest.