ChevronTexaco announce a new oil and gas discovery in the Faroe-Shetland Channel, located in 3,600 feet of water, is 80 miles north-west of Eshaness on Shetland in an area know as the Rosebank-Lochnagar in the northernmost outcrop of the UK from the Faroe Islands. Speculations that it could contain as much as 500 million barrels of recoverable crude, would be about 10% of the total oil reserves the government believes are left in the UK sector of the North Sea. The well has since been plugged and abandoned pending further testing.

Gary Luquette, president and managing director for ChevronTexaco Upstream Europe, said: "We are extremely encouraged by the well results. This is an exciting opportunity and endorses our company’s continued commitment to exploration in the Atlantic Margin test area and ongoing investment on the UK continental shelf." "We have described the field as a significant find. For ChevronTexaco to say that in a wild frontier land like the west of Shetland, then clearly you are talking about something in excess of 100 million barrels. "This 500 million number is just a product of everyone’s imagination because everyone wants it to be true. But it’s by no means beyond the range of what could be there. It’s certainly a big find."

Malcolm Webb, chief executive of the UK Offshore Operators Association (UKOOA), said there had been 32 new exploration and appraisal wells in the first six months of 2004, 30 per cent more than in the first half of last year. UKOOA expects investment in exploration and appraisal this year to rise by 12.5 per cent from last year’s £400 million, rising to £490m by 2006, driven by global increases in oil prices. This exploration was carried out jointly with Statoil, OMV and DONG, drilling to a total depth of 12,153 feet. The waters west of Shetland remain largely unknown - so much so that ChevronTexaco has agreed to conduct ecological surveys of the seabed around its new find to pass on to government authorities and the National Museum of Scotland.

Other recent moves

Major discoveries in the North Sea have been hard to come by for the past 15 years or so. Most of the 1.6 million barrels of oil pumped from the UK seabed every day stem from fields first discovered 20 or 30 years ago.The last time the North Sea optimists began to get excited was two years ago, with the discovery of the Buzzard field - which is now believed to hold reserves of about 460 million barrels. Although this field is situated 100km north-east of Aberdeen, conventional wisdom believes that if there are any other major finds to be made in the North Sea, they will be on the Atlantic frontier, close to this latest discovery.

Last week, energy giant BP announced that the Department of Trade and Industry had given the go-ahead for a £74m UK development 140 miles north-east of Aberdeen in the area known as Farragon. This find has recoverable reserves estimated at 18 million barrels of oil. First oil is expected late next year, with peak production expected to hit around 20,000 barrels per day.

BP, the largest investor and biggest producer in the UK continental shelf, is also exploring in the Shetland-Faroe gap. Its £650m Clair field west of Shetland is on track to start up early in the new year. The 250 million barrel development is expected to build up to daily production of 60,000 barrels.

New technologies in BP’s Clair field, which is only just coming on stream after discovery 20 years ago and initially produced a few thousand barrels a day, mean that same field can now produce about 15,000 barrels per day.

Department of Trade and Industry estimates of 250 million barrels to almost four billion for the total oil reserves that have yet to be discovered west of Shetland. Lochnagar was not the only well drilled in the area over the summer. Total has made more discoveries on its Laggan gas field, and Amerada Hess may have had success in the Lindisfarne prospect.

Bids have recently gone in for the second round of exploration licences being allocated by the Faroe Islands government. The results of the Faroes bidding won’t be known until January 17, but it is understood that the winners will be dominated by the majors, with Faroe Petroleum possibly the only minnow involved. Although most of the talk in recent years has been about the majors selling down their stakes in the North Sea’s maturing fields, the industry’s big guns are apparently still keen to get involved in the west of Shetland developments.

"This is something I like to make very clear," says Luquette. "ChevronTexaco still sees the North Sea as very much a core area. We’ve invested between $400m and $500m in each of the last three years and we plan to continue doing that.

"This is the upper limit of what our organisation can afford to spend here. We are flat out and we will continue to be flat out. But we believe we can make further discoveries on the Atlantic margin. It’s still risky and a very deep, harsh environment, but there are opportunities.

"There have been a number of discoveries made in this area before but most of those have not been commercially viable on a stand-alone basis - which is always the problem in frontier prospects. Now we’ve made a discovery, there’s the Laggan field, there’s the Hess discoveries - there’s getting to be enough there to put the infrastructure in place."

Because the Lochnagar field is in 1,000 metres of water, the oil will most likely be extracted through a floating production platform. Extracting the gas from Lochnagar will require some kind of pipeline, possibly linked to the Clair field, where ChevronTexaco is also has a 20% shareholding.

Research

A new survey by Strathclyde University’s Fraser of Allander Institute, commissioned by Aberdeen and Grampian Chamber of Commerce reveals that a number of contracting companies fear that exploration and production activity in the UK continental shelf (UKCS) could be drastically cut if the oil price begins to fall.

Cliff Lockyer, the author, said "Notwithstanding rising confidence and expectations of increased activity, more than 40 per cent of contractors reported operating below optimum levels and the overall level of UKCS-based activity was one of the most frequently mentioned business concerns of ten of the largest 21 contractor respondents. Lockyer said there were also concerns about the effect of the continuing uncertainties surrounding the UK’s fiscal and tax regimes. "Nine of the largest contractors thought some form of fiscal or licence changes were necessary to encourage, sustain and increase exploration and production activity," he added.

BP to dispose of Ormen Lange, Langeled pipeline & Grangemouth

BP is to sell its interests in a North Sea gas field and pipeline seen as crucial to the UK’s future energy needs. The oil giant said it will offload its 10.3 per cent stake in Ormen Lange - the second-largest gas field in Europe - to Danish group Dong for £642 million. BP is also giving up its 10.2 per cent stake in the 750-mile Langeled pipeline, which will pump gas into the UK from Scandinavia. Langeled is viewed as critical to the UK as North Sea supplies start to dwindle.

The Grangemouth oil refinery is to be sold off by BP, it emerged today. The plant, along with one in Lavera, southern France, will be included in the planned sale of the oil giant’s petrochemicals division next year. The workforce at Grangemouth, which incorporates a petrochemical plant, a refinery and the landfall of the Forties field pipeline, stands at around 1400 from a high of about 5000 in the 1980s. BP slashed 700 positions from the complex in November 2002 and announced a further 190 job losses a year ago. In January 2002 the group was fined £1 million for breaching safety laws at Grangemouth, but BP has said there has been a dramatic improvement in safety at the complex in recent years.

BP Profits

BP, the world’s second biggest oil firm, announced record third-quarter profits of £2.14 billion on the back of soaring oil prices and pro forma net earnings included a charge for exceptional costs (reflecting environmental clean-ups and other charges) of £218 million. Excluding one-off and non- operating items, BP notched up an operating result of £2.36bn.

BP said profits in the first nine months of the year were 26 per cent higher than a year ago at £6.83bn. There was a 30 per cent improvement in profits from exploration and production as BP reaped further benefits from its tie-up with Russian oil group TNK. Refining margins slipped back from record levels in the second quarter but remained high due to strong growth in demand and low stocks,and strong refining and chemicals margins. BP said profits had been buoyed by higher oil and gas output and prices,

The firm had already flagged strong production levels in its quarterly trading statement earlier in the month, with volumes rising 11 per cent on the year. A drop in higher margin non-Russian production, partly due to damage from Hurricane Ivan in the Gulf of Mexico, weighed on the company’s profits.

"The third quarter trading environment was generally stronger than a year ago, with higher oil and gas realisations and higher refining and chemicals margins," the company said in a statement.

The world economy was likely to continue to grow at current trends, said Lord Browne, BP Group chief executive, although he saw signs of a slowdown in parts of Asia, including China. He added that economic recovery in the United States appeared to have gathered speed in the third quarter, but Europe was failing to keep pace. Lord Browne said: "This has been a strong performance against the backdrop of strong global demand. "We are on track against our targets of controlled investment for growth and using additional free cash flow to fund share buy-backs."

Shells Goldeneye field on stream

Shell announced the start of gas production from the Goldeneye field in the North Sea.

The field, in the Outer Moray Firth, 100km north of the St Fergus oil and gas terminal near Peterhead, will be able to produce 3 per cent of Britain’s gas needs. The field, developed at a cost of £300 million, has estimated reserves of 500 billion cubic feet of gas and 17 million barrels of condensate.

Kieron McFadyen, the technical director for Shell Exploration and Production in Europe, added: "The £300m project has started production safely, on time and on budget, demonstrating world-class project delivery. This is an excellent example of Shell’s ability to grow its integrated gas business.

A spokeswoman for Shell explained that the oil giant and its co-ventures in the development, Esso Exploration and Production UK, Paladin Resources and Centrica Energy, had developed number of innovative solutions to bring gas ashore. Shell has a 49 per cent stake in the field, while Esso has 39 per cent, Paladin Resources 7.5 per cent and Centrica 4.5 per cent.

Gas will be delivered to the national transmission system at Transco in St Fergus while natural gas liquids and condensate will go to the Fife Natural Gas Liquids Plant in Mossmorran through an existing pipeline.