LONDON, Oct 24 (Reuters) - Canada’s Talisman Energy will invest 1.6 billion pounds ($2.55 billion) in one of its oldest oil platforms in Britain’s North Sea, taking advantage of tax breaks announced last month and providing a shot in the arm for the declining region.
Britain’s government, under pressure to stimulate economic growth, introduced a tax break for older oil fields in September to try to revive the North Sea after a dramatic fall in oil and gas output shaved at least half a percentage point off UK growth in 2011.
In a sign that the new tax regime is already paying dividends, Talisman said on Wednesday that it will invest 1.6 billion pounds to redevelop the Montrose Area, off the coast of Scotland, confirming a statement it made in September.
Geoff Holmes, senior vice president of Talisman Energy (UK), said that the project would not have gone ahead without the tax break and that most of the 100 million barrels that the project will develop would have been left in the ground.
Britain’s oil and gas production, long a boon for now dire public finances, peaked in 1999 and the oil industry forecast that the region’s decline could accelerate after the British government hiked a tax on producers by 12 percent in March 2011.
“We must do all we can to prolong the economic life of our oil rich seas and make the most of this precious resource,” British Energy Minister John Hayes said in a statement.
The government approved Talisman’s plans on Wednesday, the second North Sea project to be given the go-ahead in three days, after Shell and Exxon Mobil’s Fram field was sanctioned on Monday.
The tax breaks for older fields, which are often more costly to run, are the latest measures introduced since last year’s tax hike, as the government takes steps to reverse the impact of the tax rise and maximise oil production.
The Montrose redevelopment will involve Talisman, which has agreed to sell a 49 percent stake in its North Sea operations to China’s Sinopec Corp, bringing two undeveloped oil fields onstream through an upgrade to the 36-year old Montrose platform.
Production from the new project, which will start pumping oil in 2016, will reach 36,000 barrels of oil per day (bopd), a significant jump from current production levels of less than 10,000 bopd, and compared to the UK’s total production of 1.8 million barrels of oil equivalent per day in 2011.
Holmes said the government had demonstrated that the North Sea was “open for business”, something he believed was positive given that he sees the region’s future oil production increasingly coming from smaller discoveries and the redeveloping mature assets.