BP planning oil project west of the Shetlands

BRITISH PETROLEUM is planning to develop a large oil find off the West of Shetlands by 1997, at least three years earlier than expected. The company is also understood to have made a promising second find nearby, suggesting the area has oil reserves comparable to those of the North Sea.

Last March, BP announced the largest UK Continental Shelf discovery for five years, when it struck oil on block 204/24a, 100 miles south-west of the Shetlands. The hostile conditions in the region, which has some of Britain's worst weather and deepest coastal waters, led industry experts to assume the field would not come on stream until the turn of the century at the earliest.

However, BP is planning to accelerate this timetable with a phased development that will use technology it has already tested in the deep-water Mars field in the Gulf of Mexico. It may also convert its discovery wells into production wells, a technique it has applied in Colombia.

It has already invited contractors to bid for design work on a production vessel capable of bringing 120,000 barrels a day on stream from 1997.

Initial estimates of the new field - unofficially dubbed Foinavon after a long-odds winner of the Grand National - put the recoverable reserves at up to 500 million barrels of medium-quality crude. But industry sources suggest the discovery could be much larger - Fergus MacLeod, oil analyst at NatWest Securities, thinks reserves may be as much as 1 billion barrels. With an 80 per cent stake in the block - Shell holds the remaining 20 per cent - a find of this magnitude would add 800 million barrels to BP's published reserves of 8.2 billion barrels of oil and gas equivalent.

The company made its second discovery last October. This is believed to lie in neighbouring block 204/20, very close to the boundary line with the Faroe Islands, which is currently the subject of a dispute. The political sensitivity of the area would explain why BP has been reluctant to confirm the find, which is reputed to hold up to 500 million barrels.

BP has received quotes putting development costs for the first discovery at dollars 4 a barrel. But John Browne, BP's head of exploration, wants further savings of at least dollars 1 a barrel.

As a big beneficiary of recent tax changes, BP has a greater incentive than a year ago to develop the new fields. Before Norman Lamont's last Budget in March 1993, the find would have been liable to petroleum revenue tax (PRT) at 75 per cent and corporation tax. However, the Budget abolished PRT for new fields.

This change in the tax regime came immediately after the Government had taken the unusual step of allocating licences in the region outside the usual licensing period. Tim Eggar, Minister for Energy, said at the time the move was 'to enable BP and Shell to go ahead with their plans for works on a major new basin'.

'It is clear from the two events - the change in the tax regime and the out-of-round allocations - that the DTI is keen to see the area developed and is backing winners,' said Peter Spring, industry analyst at Henderson Crosthwaite.