Britain on Thursday awarded one of its highest ever number of licences to drill oil and gas wells in the North Sea and said it had 5 percent more oil reserves than previously thought. BP, Shell, Total and Centrica were among winners of 167 new licences to drill for oil and gas, a sector that adds 40 billion pounds to the UK's trade balance and employs 440,000 people.
New government figures also showed 2011 proven and probable oil reserves at 788 million tonnes, up 5 percent from its 2010 estimate as new technology has made previously uncommercial wells viable. Gas reserves were cut by 5 percent to 493 billion cubic metres. "Our fiscal regime is now encouraging small fields into production and our licensing regime supports new faces as well the big players to invest," Energy Minister John Hayes said, highlighting the government's drive to maximise natural resources output to help the ailing UK economy.
Last month, Britain announced that income from some mature oil and gas fields would be shielded from an additional tax charge on producers. Investment bank Jefferies said that the North Sea now offered attractive opportunities as the UK's tax allowances encouraged investment in small, old, or technically challenging fields. "The best strategies to deliver value in the North Sea are where E&Ps (Exploration and Production companies) develop several smaller fields in tandem using shared infrastructure and tax allowances to maximise value, and entering frontier regions like the Barents Sea, West of Shetland, and Atlantic Margin, which have seen material exploration success in recent years," the bank said in a research note on Wednesday.
Analysts at Energy Aspects said they expected UK oil production to continue declining by 100,000 barrels per day year on year this and next year despite the tax incentives. Britain's ex-Energy Minister Charles Hendry said in an interview last month that UK oil and gas production could increase this year after the worst annual decline in output last year since the 1960s.
Britain's energy sector contributed 4.4 percent of GDP last year, a slight increase on previous years due to higher oil, gas and electricity prices, but well below its peak at 10.4 percent of GDP in 1982. Investment in oil and gas extraction rose to a record 8.5 billion pounds last year, overtaking money spent on the power and gas sector for the first time since 2006.
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