North Sea investment to top £16bn on oil industry bounce

• A resurgent oil industry is set to increase its investment in the North Sea. Picture: Getty Images

The latest economic report published by Oil & Gas UK, the pan-industry trade body, has highlighted signs of growing confidence across the sector with plans to develop a potential 70 fields in the pipeline.

Both exploration work and development drilling is expected to exceed last year's levels in the search for oil and gas discoveries in the UK continental shelf (UKCS).

Overall investment in the North Sea this year alone is expected to rise above 5.5bn, compared with 5bn in 2009.

Malcolm Webb, chief executive of Oil & Gas UK, said that plans by the French oil giant Total to develop the massive Laggan and Tormore gasfields, 90 miles north-west of Shetland, was just one of the capital projects seeking approval in 2010.

"Together, they will require investment of 16bn to deliver 1.5 billion barrels of oil and gas reserves over time," he said.

But Webb warned: "Investor confidence is essential if these investments are to proceed. This is a long-term industry where the investment cycle from discovery through to first production can take two parliaments or longer to achieve and many fields may well be in production for decades.

"Such massive investment decisions require certainty and predictability in both the fiscal and regulatory regimes; any changes to tax rates or capital allowances in the short term would be highly damaging."

Mike Tholen, the economic director of Oil & Gas UK, stressed there was still all to play for with up to 24 billion barrels of oil and gas to be recovered. It was significant, he said, that the latest round of exploration licences had attracted 356 applications - the largest number since the first round back in 1964 at the birth of the North Sea oil and gas industry.

He said: "This year - if everything that people wanted to invest in was invested in - you could see something like 16bn of investment kicked off. It wouldn't all happen in 2010 but it still shows the potential, the opportunity and activity that people are trying to pursue in the North Sea.

"Contrary to the general perception that reserves are dwindling fast, the oil and gas produced from beneath our seabed still meets the vast majority of this country's primary energy needs over the year - 94 per cent of our oil demand and 68 per cent of our gas demand.

"Importantly, with sustained investment, encouraged by the right business environment, we will have enough oil and gas still to satisfy half of the UK's needs in 2020."

During the briefing, Webb also dismissed suggestions that the oil spill disaster in Louisiana could have an impact on BP investments in the North Sea.

He said: "BP is a very significant player in the North Sea and still the largest single corporate investor in the UKCS. They are an important part of the equation over here.

"But do I see any threat to that at the moment? Personally speaking, no I don't."

He added: "It's an incident that we need to reflect on. We don't know its full implications yet."

Webb suggested that American regulators would be likely to move to a "goal setting" regime established in Britain in the aftermath of the Piper Alpha disaster8 22 years ago yesterday which and killed 167 people.

Last month, a senior BP executive addressed staff in Aberdeen to reassure them on the company's commitment to the North Sea. Bernard Looney, managing director of BP North Sea, told workers that their jobs would be safe - and that there were no plans to pull out of the area.

On Monday. BP admitted that it had so far spent $3.1bn (2bn) on its response efforts in the Gulf of Mexico.