Major North Sea oil investment approved

A new £4 billion North Sea oil development off Shetland which should create thousands of jobs has been approved.

EnQuest PLC will invest in the 137 million barrel Kraken development, which has been given the go-ahead by the UK government’s Department of Energy and Climate Change (DECC).

It is the largest investment announced in the North Sea this year and, according to EnQuest and based on Oil and Gas UK’s projections, the development is expected to create up to 20,000 jobs during construction and around 1,000 operational jobs a year over the course of its 25-year life.

Kraken is a large heavy oil accumulation located in the East Shetland basin, to the west of the North Viking Graben; approximately 75 miles east of Shetland. EnQuest is the operator of Kraken and will develop the project on behalf of itself and its partners. The project will be EnQuest’s sixth production hub in the North Sea.

The Kraken vessel will be one of the largest ever built in the North Sea and gross peak oil production is expected to be over 50,000 barrels per day. The first oil is expected to be produced by 2017

The development has two heavy oil fields, both of which will benefit from heavy oil allowances.

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. EnQuest extends the lives of mature oil fields and brings to life previously undeveloped oil fields, using the integrated technical skills of our people and our significant operational scale as the largest independent North Sea producer.”

Chancellor of the Exchequer, George Osborne, said the investment would boost the economy significantly. He added: “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 Scottish energy minister Fergus Ewing said it offered “unequivocal evidence” that the North Sea had a future as an oil producing province.

Northern Isles MP Alistair Carmichael said the investment was a “vote of confidence” in the oil industry and the North Sea.

He said: “The North Sea oil is a crucial part of the national economy, and very important to Orkney and Shetland. The news the UK government has given EnQuest the go-ahead for the largest investment in the North Sea this year is a vote of confidence in the sector.

“The project’s two oil fields will both benefit from UK government allowances, creating jobs and supporting a £4 billion investment in our economy.”

Industry representative organisation Oil and Gas UK welcomed the announcement. Operations director Oonagh Werngren said: “This is yet another clear sign that opportunity remains in the North Sea. This project reiterates the importance of the measures that need to be taken to secure the continued success of our industry.

“The Kraken project, the largest investment announced in the UK North Sea this year – and one of the largest industrial investment of 2013 – is an example of how government tax allowances are working to stimulate activity on the UK Continental Shelf (UKCS). In bringing forward a particularly challenging heavy oil development, it is also a reflection on how the industry can respond to a stable and predictable business environment.

“Development of Kraken will secure a significant number of jobs for the UK, provide a valuable source of primary energy to enhance our security of supply and generate tax revenues for the Treasury, which is all very much to be welcomed.”