BP is spending £3bn to redevelop two North Sea oilfields, despite tax increases outlined in the Budget.
The investment in the fields at Schiehallion and Loyal, to the west of the Shetland Islands, will give access to the 450 million barrels of oil left in the area – enough to ensure production to 2035, the company said yesterday.
The North Sea oil and gas industry had expressed outrage at surprise tax changes announced by the Chancellor in March. With no warning, George Osborne upped the "supplementary tax" on North Sea production from 20 per cent to 32 per cent when the price of oil goes above $75 a barrel, as a mechanism to offset spiralling fuel prices.
The move prompted waves of complaints from companies active in the North Sea. Statoil even froze development of its 430-million-barrel Mariner field – although the Norwegian giant reversed its decision last week, when the Government tweaked the rules to offset some of the impact on marginal fields.
BP said yesterday that the tax rises have cut the value of the Schiehallion and Loyal fields, and had been taken into account when deciding whether to go ahead. But the details of the case – that is, the fact that the company had already invested in facilities, the quantity of oil remaining, and the length of time the fields will be in production – were more significant.
"The tax increase certainly didn't make the decision any easier. However, the size and scale of this development means we are able to progress – the industry's concerns remain around future green-field developments, gas projects and smaller, more mature fields," a spokesman for BP said.
The redevelopment programme includes drilling new wells over the coming years, and each stage will be subject to a separate investment decision. So any future tax changes may yet render such drilling "uneconomic", BP warned.
The initial phase of the project now set to go ahead is the replacement of the existing floating production, storage and offloading vessel at Schiehallion.
The new vessel will be 270 metres long and 52 metres wide, and will be able to process up to 130,000 barrels of oil a day and store another one million barrels. The fields' subsea facilities will also be upgraded and replaced, with a view to starting production in 2016.