North Sea Oil Discovery

Brian Hicks

Written By Brian Hicks

Posted April 25, 2013

Oil prosperity is coming back to the North Sea.

This week, Cairn Energy (LSE:CNE) announced a discovery of 30 million barrels of oil concentrated within its Bonneville well. Cairn’s partner Premier Oil (LSE:PMO) operates the well with a 50 percent interest, and Cairn has a 30 percent stake.

north sea oil rig sidebarCairn also has a 20 percent hold in Skarfjell well, with a company estimation of anywhere between 60 to 160 million barrels of oil, as reported by BBC News.

This is refreshing news for Cairn, since the company has had little success in making oil discoveries in the North Sea. So far, Cairn has focused on drilling operations in India, but CEO Simon Thomson returned to the North Sea in pursuit of a more balanced portfolio, according to Herald Scotland.

Cairn has been quite active in the region after selling some of its Indian assets to Vedanta Resources in 2011, using the money to fund acquisitions of Agora Oil and Gas and Nautical Petroleum to continue North Sea campaigns. Cairn has been quite conservative in its North Sea campaign avenues—something that will allow the company to make further explorations near Greenland.

Cairn is returning at a time when the British government is hoping to attract new investment to the North Sea and Atlantic through tax incentives and employment programs.

North Sea Revitalized

North Sea reserves have traditionally provided a buffer against OPEC imports in the British and Norwegian economies. But with dwindling reserves and lukewarm discoveries, North Sea operations have been declining for some time, forcing oil companies to pack up and head elsewhere.

North Sea production reached an all-time dip of 17 percent within the past two years, the lowest since the 1970s.

According to Yahoo! News, declining development between 2008 and 2009 hurt domestic output in 2011 and beyond.

Last year, there was a leak in French company Total’s (NYSE:TOT) Elgin field, which effectively closed down three percent of British production. Total has failed to fully recuperate from the leak, stating that a return to full production could take years.

There is also the issue of older infrastructure, and certain fields had to be shut down for maintenance in the wake of the BP (NYSE:BP) spill in the Gulf of Mexico.

And North West Europe has suffered from widespread shortages of rigs, slowing down production.

But the British government believes there is still more to be discovered, which is why officials have been itching to lure business back to the region. North Sea oil has bolstered the economies of the British Isles, and since the island is going through some economic turmoil, North Sea reserves may boost employment numbers and lower domestic fuel prices.

North Sea oil is one of the main reasons why Norwegians have such a high standard of living and have been able to remain fairly stable while the rest of Europe descended into economic decay.

Many reserves have been tapped and drained, but the region needs renewed investment to fund more drilling campaigns and higher technology, along with more commitment to infrastructure upgrades to get older fields back to peak efficiency.

Oil production in the North Sea is expected to flourish by next year because of higher investment.

North Sea oil production could reach 1.4 million bpd by 2017.

For the North Sea to keep pace beyond 2017, there would need to be more substantial discoveries. The recent finds have been helpful, but it is anyone’s guess if North Sea production will be able to remain at the million mark beyond five years.

The only way for this to happen is if more companies flock back to the region. With the recent discoveries of reserves in the North, this is a sign that North Sea exploration may continue to be a rewarding endeavor.

North Sea Investment

The North Sea has yielded some bad luck, but investors and companies refuse to give up on this area.

Earlier this month, Norwegian company Statoil (NYSE:STO) made a discovery of anywhere from 40 to 150 million barrels of recoverable oil in the Gullfaks oil field, an area in operation since the 1980s, according to the News Tribune.

BP is investing in Clair field in the Shetlands Islands, a small area with rich reserves to the far north of Scotland.

Analysts also predict a pickup of North Sea investment activity in the next few months.

Companies in the U.K. are expected to spearhead the increase. Serica Energy (TSX:SQZ) is expecting its first signs of gas by the middle of 2015 under the Columbus project. Xcite Energy (TSX-V:XEL) achieved major results from its Bentley field.

A new water injector is expected to increase output from Antrim’s (TSX:AEN) Causeway Field from the currently sustained 4,500 bpd.

There will no doubt be more discoveries as investment and production pick up, so keep a lookout for more North Sea breakthroughs.


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