For A Few Trillion Barrels More

On 18th September 2014 (in a few days time), Scotland will vote on the following question:

Should Scotland be an independent country?

Answer YES and the vote is for independence, answer NO and the vote is to stay with The United Kingdom. Energy has not figured at the top of the debating issues that have been dominated by currency union, the economy and disaffection with Westminster. The future of North Sea oil has been on the second tier but periodically gets thrust into the limelight, normally on the back of sensational headlines about the future. Part of the current reality is that Aberdeen is in the early stage of cyclical recession, brought about by declining production and soaring costs now exacerbated by Brent sliding below $100/ barrel. Redundancies have already begun. In this post I want to examine three issues that have been in the news 1) future exploration potential 2) offshore fracking and 3) remaining reserves.

Figure 1 The history of UK Offshore Field discoveries according to this UK government source. Three main discovery cycles are evident, the third centred on 2007 riding on the back of rising oil prices. The UK is now at a discovery rate cycle low not witnessed since 1968. In recent commentary the highly respected Professor Alex Kemp of the University of Aberdeen saw on average 3 discoveries per year over the next 30 years which is a rather cautious but credible estimate.

Exploration Potential

The local Press and Journal (P&J) carried a story on September 10th with the headline:

Economist predicts oil bonanza

Professor Alex Kemp amongst other things forecast that there may be 99 new fields discovered in the next 30 years. So let’s place this bonanza in context. Figure 1 shows the history of UK offshore field discovery. Since 1965, on average 12 fields have been discovered per year. The best year was 1989 with 29 discoveries. That was a bonanza! Professor Kemp’s forecast for the future is for 3 discoveries per year, one quarter of the historic average.

Another important consideration is the size of discoveries. I have not had time to collate this, but rest assured that the average size has declined dramatically with time. On average, future discoveries will be much smaller than those made in the past.

Figure 1 shows three clear discovery cycles and we are now at the cyclical low. Companies have for the time being run out of ideas and money. But that will change and the industry will pick up again in the years ahead, as new exploration plays are developed and new technology is brought to bare.

Professor Kemp had a letter in the P&J on 12 th September complaining that the paper had misrepresented his views saying amongst other things:

In Wednesday’s P&J, there was a headline attributed to myself predicting an “oil bonanza” from the North Sea. Nowhere did I say this. In our research, our economic model predicts that investment will fall off in the near future, while oil/gas production could increase for a few years, but then enter long-term decline. The total recovery we predict to 2050 is in the 15 to 16.5 billion barrels equivalent range.

By 2050, production is in the 200,000 to 250,000 barrels oil equivalent range.

I have had my disagreements with Prof. Kemp over the years but I do agree with the gist of this statement. Oil and gas production will rise a little in the years ahead with major projects like Clair phase II and Laggan fields coming on line. But then underlying decline of the whole basin will take production down. The North Sea will still be producing in 2050 but at much reduced levels that are very difficult to predict today.

Hopefully Figure 1 provides some context. Yes the North Sea has a future  but that future is quite dim compared to the past. Aberdeen will continue to prosper for decades providing services to the oil industry in Africa and Asia.

Offshore Fracking

Before the UK has even successfully drilled, fracked and tested an onshore well in “shale gas” or “shale oil” there is talk of an offshore fracking bonanza. The target is the Kimmeridge Clay Formation that is the organic and clay rich source rock for most of the oil and gas found in the Central and Northern North Sea. This is one of the richest source rocks in the world and it is certainly true that where it is buried to depths of 10,000 feet or more that it will contain abundant oil and gas. The problem is how to get the stuff out since the Kimmeridge Clay is a mud rock (true shale) where the permeability is so low that oil and gas will not flow. Fracking is designed to fracture the rock so that a portion of the oil and gas may be exploited. Let me provide some context.

In the olden days of giant conventional oil fields, initial flow rates from wells in excess of 20,000 barrels per day was the prize exploration companies were looking for. Forties Field had peak production rates in excess of 600,000 bpd back in the late 70s.

So now let’s consider shale. I sent an email to one of my groups with a question on flow rates. Shale expert Arthur Berman replied:

Peak rates are about 500-600 bopd per well in the best fields.

And those rates will decline to half that in a year or two. So a new shale well may produce about one 40th of new conventional well. Drilling long horizontal wells and fracking offshore is VERY expensive.  500 bopd will produce a cash flow of $18 million in the first year, declining rapidly thereafter. According to Professor David Macdonald of the University of Aberdeen conventional North Sea wells today cost around $30 to $75 million each. Long reach horizontal and fracked wells will cost substantially more. It is therefore highly doubtful that unconventional oil offshore may come close to paying for the well let alone the platform and other operating costs at current oil prices.

Let’s try and frame this a different way. Sanish is one of the more prolific sweet spots in the Bakken shale oil play of N Dakota. Pre 2012 it had 273 operating wells. These wells are expected to eventually produce 167 million barrels of oil. That is really nice to have onshore and would indeed be nice to have in the North Sea. The catch is well productivity. A typical N Sea steel jacket platform may have 20 slots for wells (i.e. capability to produce from 20 wells at any one time). 13 or so offshore platforms would be required to support the relatively small production that Sanish provides. This may create a jobs bonanza, if only it could be achieved at a profit, which it can’t at current oil prices. 167 million barrels recovery may support paying for one platform but certainly not 13. OK, so the plan may be to use existing infrastructure, delay decomssioning and keep the N Sea going for a while longer. Great! If only the wells could produce more money than they cost to drill.

There seems little doubt that the Kimmeridge Clay will be drilled and fracked in the North Sea. Stock prices will rise on expectation and then fall again when the financial reality, that in the olden days was always worked out in advance, sinks in.


N56 is not a new hallucinogenic drug circulating around NE Scotland, it is an independent think tank with distinct YES leaning tendency much loved by the Scottish National Party leadership. N56 recently published Part 3 of their report into the future of the North Sea which reads like a report produced by industry experts.

Here’s an excerpt of the summary:

To date, 42 billion barrels of oil equivalent (bn boe) have been produced from UKCS using conventional production techniques and there is a consensus that there are remaining conventional reserves of around 24 billion boe (how much of this is produced will depend on oil prices and whether policy recommendations to encourage collaboration and maximise recovery are implemented). Unconventional oil and gas production, or Upper Jurassic Oil, could add a further 21 billion boe – and perhaps even as much as 42 billion boe. This is based on recovery rates of between 5% and 10%, of the unconventional reserves in the UK sector of 420 billion boe (out of a total 1,000 billion in the Kimmeridge Clay as a whole). Most, if not all, of this would be within the Scottish continental shelf.

I should like to point out that there is absolutely no consensus on 24 billion barrels being the remaining conventional reserves, a point that Sir Ian Wood has been at pains to point out. Reiterated by Professor Kemp (see above). But to that N56 are now adding another 21 billion or even another 42 billion.

North Sea unconventional oil reserves are in fact zero and will remain zero until commercial viability is proven using the drill bit. Let’s take a look at what would be required to produce this resource. Average total recovery per well in the Bakken is 412,000 barrels (source Arthur Berman). That means 102,000 wells would have to be drilled off shore to recover 42 billion barrels.

42 billion barrels has a street value in Aberdeen of $4.2 trillion. The price tag for 102,000 wells at $50 million a pop is $5.1 trillion and that is likely a gross underestimate. Jobs galore, but money haemorrhaging from the economy.

As already pointed out, the N56 report looks professional and is superb propaganda. They even produce production numbers and costs that are not too far out of line with those I provide here. So where is the catch? N56 provide a typical oil value per well of $20 million and describe drilling costs as £10 to £30 million per well, i.e. $16 to $48 million in costs per well. So lets take a deep breath, their median cost is $32 million and revenues $20 million. What are these guys smoking?

And its worse than that. All N56 costs are based on re-entering existing wells. The existing wells in the N Sea may only target a tiny fraction of the Kimmeridge resource. You quickly need to divide your 42 billion resource estimate by a 100 or even 1000. And even then you still need to work out how to earn more than you spend.

N56 conflates $ with £ and resources with reserves in an attempt to deceive. Is this what the future holds?

Prediction is very difficult, especially about the future.

Attributed to amongst others Niels Bohr and Yogi Berra. I will make a prediction for Friday 19th September and that is approximately 50% of the Scottish people will feel elated and the other 50% distraught. What has brought such division to our society?

Related reading:

UK North Sea Oil Production Decline
North Sea Oil and Scottish Independence: where does the truth lie?
The Clair Oilfield – distilling facts from fiction
Cameron Warns Norway over Shetland Land Grab

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57 Responses to For A Few Trillion Barrels More

  1. Very thought provoking article again Euan. When I’m trying to disabuse people of the notion that Scotland is awash with oil, one of the main “counter-arguments” is the “fact” that there are vast, untapped reserves supposedly in the Firth of Clyde, The Solway Firth and west of the Hebrides (although I think that some people may confuse this with West of Shetland), which the UK government has been conspiratorially hiding from the Scottish people. As far as I can see (obviously apart from West of Shetland) this is pure speculation and there is little or no hard evidence of an exploration play or any significant reserves in these areas. I would be very interested in your view, and anybody else’s take on this.

    • Euan Mearns says:

      Andrew, to make oil or gas the first pre-requisite is a source rock (organic rich shale) that has been buried to sufficient depth to convert the organic matter (kerogen) to oil and gas. As far as I’m aware, source rocks AND sufficient burial are lacking in both Clyde and Solway. Decades ago there was an oil company called Clyde Petroleum – they didn’t find anything (but I’m not sure they even drilled).

      West of Shetland is a totally different issue. Go offshore far enough and there are large thicknesses of Palaeocene lavas, the same ones that you see on northern Skye. These lie above the Jurassic source rocks and form a kind of seal that prevents the oil getting into higher Tertiary reservoirs. Foinaven and Schiehallion are exceptions where the oil found a way through.

      There could be quite a bit of oil below the lavas but they absorb all seismic energy making it very difficult to see what is going on below the lavas. And so drilling is a bit like hitting a dart board blind folded. And the wells are very expensive, so companies have done little exploration way down there.

      The Faroe Islands would be a good analogy. They have the same geology and have drilled a few wells. You should check out their oil reserves. I think you will find zero.

      • Hallucigenia says:

        BP was issued PL262 over Area 239.8 in the Clyde from 1984-88 and seismic was shot but according to the Yes campaign no drilling happened because the MoD was nervous about such activity close to Faslane – the Sunday Post has claimed Michael Heseltine has confirmed this story, the only official documentation is this FOI which gives the date and location in the basin southwest of Arran (the island itself is a flipping great Tertiary volcano)

        Yessers have suggested 500 mmboe of prospects, but there doesn’t seem to be any backing for this.

        The Arran trough shares geology with but is separated by Kintyre from the Rathlin Trough, which is seeing modern exploration. Yessers claim there has been a discovery of 530mmbbls there, which when you look into it is Providence’s undrilled Polaris South prospect. They have seismic but no more, STOIIP range is 155-530-1853 mmboe :

        They’re excited as it’s on trend with the Ballinlea “discovery” by Rathlin Energy onshore Antrim. Except Rathlin have only found shows in Ballinlea-1 well, they claim that they’ve just clipped the target near the OWC thanks to fuzzy seismic and are drilling a second well in early 2015. PVR are waiting for Ballinlea-2 before drilling Polaris.

        This is a good overview of undiscovered UK potential here :

  2. Hugh Sharman says:


    Good article! Unfortunately, by the anecdotal evidence one gets from the BBC, “YES” voters have been brainwashed into believing, quite honestly, that there is a UK Treasury/oil company/Lib-Lab-Con conspiracy afoot to surpress the truth about remaining reserves.

    One YES voter interviewed on Saturday, believes that Clair contains “billions” of new oil reserves but that BP is suppressing this “good news”!

    Can Salmond be such a crook? Or is he genuinely fooled by his own propoganda?

    • Andrew Thickpenny says:

      Salmond’s life ambition has been for Scotland to become independent, by whatever means, so a bit of simplistic and populist massaging of oil figures is certainly not beyond him. Interesting what you say about Clair Field, as my experience is that the layman is totally unaware of recovery factors and just assumes that 8 billion barrels of oil in Clair is all there for the taking. Unfortunately, as we all know, even with the best technological expertise of BP, recovery factors are likely to be well under 10%.

      • Hallucigenia says:

        The 8 billion barrels seems to have suffered through interpretation by the mainstream media, not for the first time, in particular a BBC website report. I refer people to the exact quote from the BP press release announcing a $500m 2-year appraisal programme in March 2013. It’s hard to tell people that there’s no “coverup” about the resources in Clair Ridge, it’s just that they’re in the middle of a 2-year project that will be ready when it’s ready.

        Total hydrocarbons initially in place across the entire field are estimated at around 8 billion barrels of oil equivalent, although due to the highly complex and fractured nature of the reservoir, there has been considerable uncertainty as to how much of the oil can be recovered.

        If anyone has solid references in the public domain on Clair recovery rates, it might be helpful to circulate them…

        • Euan Mearns says:

          Phase 1 has produced to date 98 million bbls oil or 1.5% of STOIP (assumed to be 6.5 billion bbls). Phase 2 is targeting 640 million bbls that represents 10% of same STOIP. Clair is shit reservoir and heavy oil. BP have done marvellous job of converting a once unproducible resource to this level.

          Many years ago I ran a geochemistry company and we did a project jointly with a guy called Andy Morton looking at isotope and mineralogical markers in the Clair reservoir. The isotope stuff that I was doing didn’t work but the mineralogical stuff did and it is my understanding that the mineralogy markers are used to drill all wells to this day. Without it Clair would not exist.

          • Hallucigenia says:

            Oh, I quite understand that your recovery rates are going to be rubbish for 24 API oil in a complex reservoir, and was aware of the big picture numbers you quote. But they’re not going to convince Yessers that have been persuaded of a conspiracy to hide billions of barrels of recoverables – or even neutrals who want to get a feel for what headroom there is on the 10% recovery commonly quoted.

            I was hoping for something a bit more detailed from the technical literature, clearly you’re comparing apples with oranges when you quote recovery from Phase 1 up against STOIP from the Clair area as a whole. Presumably somewhere there’s a STOIP number just for that southern bit?

    • Euan Mearns says:

      YES have run a very effective campaign. They are after all campaigning for something new that they want and are passionate about. The NO campaign has not shown up for the fight. They after all are arguing for the status quo, its difficult to get passionate about that.

      It would be great if all readers of this article who wish to do so, disseminate the link as far and wide as possible via Facebook, Twitter, Reddit etc. There are sharing buttons at the bottom of the post.

      I’ve also been sending links to Alistair Darling and to Better Together but they do not appear to have used this opportunity to counter Nationalist propaganda. Should you feel inclined to do so, get on the back of Better Together.

    • peter2108 says:

      “.. vast, untapped reserves supposedly in the Firth of Clyde” Does the Internet encourage popular delusions and the madness of crowds? Is Scotland enthused as it was long ago by the Darien Scheme?

  3. Sam Taylor says:


    It certainly seems to be dark days in the industry at the moment. Share prices at all the major seismic processors (my line of work) are down something like an average of 50% in the last year, with redundancies probably looming. Conversations with friends in Aberdeen suggest that the industry is struggling to turn a profit at $100/bbl, but then higher oil prices seem to suppress demand. Bit of a vicious cycle. I wish I had your faith that more technology will produce more gains, but I’m a bit of a doubting Thomas in that regard. I’m currently working my way through Drilling Down by Tainter, and the arguments he puts forth about the energy-complexity spiral we seem to be in are quite compelling.

    It’s a real pity that the independence debate has been of such poor quality on the energy front. The electorate are so poorly informed! As an Englishman, I do rather hope that the union holds, as I think the short term consequences for everyone would be terrible after a “Yes” vote. However I certainly wouldn’t blame the Scots for wanting to strike out on their own.

    • Euan Mearns says:

      Sam, when I started commenting on energy years and years ago on The Oil Drum I used the moniker Cry Wolf. One thing that used to separate the Doom Peak Oilers from the Cornucopians was the latter always saw human technology and innovation winning through. And so along came shale, never mentioned for decades, sending the USA on the road to gas independence at least. We can brush all the losses and debts under the carpet for the time being.

      We are at an interesting juncture where the cost of producing energy is higher than many folks can afford to pay. But the whole situation is confounded by the fact that OECD governments with their CO2 reduction strategies are deliberately trying to make energy more expensive. Salmond is in the vanguard of this red hot low carbon revolution.

      Truth is that Scotland could secure much of its energy (electricity) security for 50+ years with two new 3.2GW EPRs. Much of the energy poverty at present is Green inflicted, but embraced by our politicians.

      Bed time reading:

      Energy and Mankind part 1
      Energy and Mankind part 2
      Energy and Mankind part 3

      • Sam Taylor says:

        You can certainly count me amongst the doomers, perhaps not quite to the same level as say a Gail Tverberg, but I guess around that ballpark. However I have been greatly impressed by the strength of the stabilising feedbacks that the system has managed to concoct (shale certainly being one of them) and I’m certainly prepared to admit that I could be wrong again. I certainly hope I am! 2005 was one inflection point in the story, and it’s starting to feel like another might be approaching. Who knows, perhaps a scottish yes vote might trigger a market collapse!

        I absolutely agree with you that energy policy is completely wrongheaded, though I sometimes feel like you’re a little too harsh on the greens. I think a lot of the negative consequences are unintended, and are perhaps influenced by confused and poor quality scientific advice. It is a pity that when designing energy policy, our lawmakers never seem to take systemic response to said policy into account, however I don’t think there’s a single government minister with any understanding of systems science or complexity, which is rather unhelpful when dealing with complex systems!

        I very much enjoyed your energy and mankind series. Should be compulsory reading for DECC ministers.

      • Ralph W says:

        If the cost of pumping oil out of the ground is greater than the customer can pay, and only likely to rise in the future, then that must mean we are at the peak of oil production, because costs cannot exceed income for long. So, the only way to sustain the energy supply is to move to renewable energy supplies, which are still showing a declining cost curve as investment and development have not hit diminishing returns yet. Yes , in the short term, this will cost the consumer more, but the option is sustain fossil energy at all costs for as long as possible, or to take some economic hit now to build alternative infrastructure to reduce the impact of declining fossil energy in the near future. CO2 may be seen as a false cause if you like, but the argument to move away from finite energy reserves to tapping constant energy flows does not need it.

  4. Pingback: Euan Mearns: The Scottish Referendum & The Energy Question | The Global Warming Policy Forum (GWPF)

  5. derek louden says:

    Hello Euan,
    I’ve followed the debate with some interest & thought Gordon Brown looked shifty when he announced quite early in the campaign that output was going down and would continue to decline. I spent a couple of weeks playing with the numbers and produced the following:
    As it says on the tin oil output will be 50% higher by 2018. This was sent to both the OBR and to DECC. Given that they had produced a flat line forecast I asked which fields were not being developed. They didn’t have an answer.
    I also looked at our fiscal performance in comparison to Norway:
    We’ve both ended up with big numbers, whilst Norway’s is good ours isn’t.
    Finally I looked at the tragedy which will develop now we’ve granted the right to borrow from the Bank of England to London’s casino banks:
    The next time there’s a crash it isn’t the high street banks we’ll be bailing out its London’s share of the global $71.2 Trillion forex, interest rate and commodities contracts. Surprisingly, given it could easily bankrupt the UK, not a lot of people know that. Did you vote for that?
    I realise there will be struggles for an independent Scotland but cannot believe we can do a worse job than this.

    • Euan Mearns says:

      Derek, here is your forecast. I was meaning to do this myself, but as you point out its a couple of weeks work. I have no major issue with the forecast. But one observation and a couple of questions. The decline of the underlying production stack seems to take a dog leg up around 2013. Production has been depressed by a large number of field outages, and so perhaps the dog leg is correcting that? What decline rate are you using for the underlying stack. Until recently, the historic average decline was about 9.5%.

      And your new field additions. The big ones are Clair phase II, Mariner and Kraken. Can you give a list of the bigger fields in your forecast by year together with production in bpd which I can relate to more easily that tonnes per annum.

      I am often accused of having a half empty glass 😉 The pessimist view is that by 2020 we are back to where we are now.

      I realise there will be struggles for an independent Scotland but cannot believe we can do a worse job than this.

      I’m concerned that we may manage to pull a mexie rabbit out of the hat. I look at RBS, HBOS etc and wonder how we would have fared without the BOE to bail us out. And I look at the parliament building debacle and Edinburgh trams and the energy policy etc.

      • derek louden says:

        Hello Euan
        Sorry for the delay in replying. The field development pipeline is set out on pages 42 and 43 of the report. I’ve seen a video of Nexen’s Golden Eagle topside installation and believe this should be in production before the end of the year. BP’s Kinnoull field should also start production but there is no information on their website as to when this will happen. I accept that projects are prone to delay. Output in the first half of the year was up slightly according to DECC. I’ve set the decline rate for existing fields at 10% PA and for new fields at 25% PA. This is over the top but I wanted to err on the side of caution as I was certain to do otherwise would cast me as just the kind of daft optimist the industry sees too many of already.
        In terms of conversion from Tonnes PA to BPD (1) divide by 365 and (2) divide by 0.136 (explained on Page 75). The figures on pages 42 and 43 give dates for expected start. I’ve assumed no production for the first nine months of each year to account for a summer hook-up and an autumn commissioning leading to a 4th quarter production start.

      • derek louden says:

        Hello Euan
        Great news about Hurricane Energy’s Lancaster Field. Good to see the industry just getting on with the job and letting the politics take care of itself. I should have commented on the RBS bail-out which was mostly funded by the USA since that was where most of the global mega-bank’s activity was taking place. The “cost-plus” contract for the Parliament was a shambles. Wales had a fixed price contract and delivered it on budget. Ditto the trams. Both of these were foisted upon/inherited by the SNP Govt by a Lib-Lab pact. Your energy policy remarks, as a regular reader of your articles, I assume refers to the switch to wind power. I’m still hopeful that technological improvements in storage can transform the efficiency of wind. This week’s announcement from Glasgow Uni is a positive step in this regard:
        If they’ve got the cost down by 99% I’d be surprised. But it would be a nice surprise for once!

  6. Hallucigenia says:

    (Even a published P10 figure would be helpful if anyone’s got a source)

    • Euan Mearns says:

      Hallucigenia, thanks for your informed postings here which tend to underpin the uncertainty that exists around the world we live in, especially the future of the energy supplies upon which all our future prosperity depends.

      I have sent an email to BP (I have very many contacts there) suggesting they should make a statement about Clair tomorrow (Tuesday) since rumours about Clair ridge have been circulating for months and should really have been addressed long ago.

      BP are establishment, bound by stock market and SEC rules and are unlikely to recognise problems they may have until it is too late. They may awake on Friday believing they were playing Monopoly to discover they were in fact playing Risk.

      • Hallucigenia says:

        There’s also the herding cats problem when partners are involved. It’s probably too late now, at this stage they’re damned if they do and damned if they don’t.

        They should have had their political whiskers twitching when Yes went past 40% around Easter. They could have legitimately released a half-time progress report on the Clair Ridge appraisal back then, now it looks like it’s being orchestrated by the lizardmen of Downing St. I can understand that the political team at a company involved with Russia might have been a bit distracted at that time!

        Bizarrely, it’s the 1980s work on PL262 that’s almost more influential. The Saudi of the Clyde brings hard cash and jobs to make up for cuts at Faslane/Coulport, which gives an intellectual justification for the emotional rejection of Trident. In turn that makes Yes a lot easier to tick.

        Looking at the Arran trough, it can’t be much bigger than the island itself (432km2)? So you’re looking at something a similar geographical size to the Morecambe Bay complex? Obviously it’s incredibly unlikely that a small basin would be that “perfect” – but at the moment FUD thrives in a vacuum. You can try telling Yessers that there physically isn’t room in the Clyde for the multiple Ghawars they seem to believe would be unlocked by dumping Trident, but it’s hard to persuade even the more open-minded ones without any hard details.

        • Euan Mearns says:

          The west of Britain is generally a much poorer quality oil and gas province compared with the N Sea. When BP took over Britoil they were required to drill about 100 wells that led to a misguided drilling frenzy, but I think Foinaven was one of the successes from that campaign. One of the failures was a well drilled in the Minch. Can’t help feeling that if any of those inshore basins were prospective that they would have been drilled, although I imagine that the MOD complaining about nuclear submarine security would have some sway in Whitehall.

          Looking at my PESGB map, none of the inshore basins appear deep enough to mature source rocks.

          Another west of Britain field is Corrib, off the west coast of Ireland, discovered by Enterprise Oil many years ago (1997). Acquired by Shell the field development has been repeatedly delayed by environmental concerns. I’m still not sure it is producing today. Ireland meanwhile imports most of its gas via the UK.

          • Hallucigenia says:

            Security of the deterrent is a non-negotiable for MoD, they are paranoid about it and would be able to overrule any development between Faslane and deep water.

            There’s an argument that can be presented to Yessers that the Rathlin Trough has similar geology but no MoD restrictions, and yet has been a long way down the list until recently. I imagine that having one of the biggest volcanoes in Britain on the margin of the Arran trough may have helped cook the kerogen therein…

            Corrib’s getting there, they completed the pipeline tunnel a few months ago which was the last major groundworks, so I guess they should be onstream fairly soon now. There’s also a couple of other developments – Connemara is a 100mmboe-ish old BP discovery where the economics have now caught up.

            Providence are one of the big fans of west of Ireland, there’s some multi-tcf prospects out there. Exxon were convinced to drill what must have been a $80-100m well at Dunquin which found 144′ of residual oil, there’s clearly a working petroleum system out there.

  7. Ed says:

    Everything is relative. However much or little oil is still left in the North Sea, an independent Scotland will still have an enormously greater oil production per capita than England, Wales and N. Ireland. For me, energy production is equivalent to wealth so a YES outcome will make Scotland much richer and the rest of the UK much poorer.

    In the event of a YES outcome I may have to move to Scotland before they close the border to economic migrants from the poor South !

    • Hallucigenia says:

      @Ed – this isn’t a competition with EWNI. Quantify your statement that “a YES outcome will make Scotland much richer” – Yes won’t make a single extra barrel of oil come out of the ground, whilst further investment will be discouraged by some of the rhetoric against the evil oil companies and the risks of higher interest rates etc.

      There was a guy on telly tonight who owned a drinks warehouse in Glasgow (now there’s a cushty business!) talking confidently of “Scotland’s huge wealth” from oil or some such. Yes have been very effective in giving that impression. Reset it in terms of goverment expenditure and it is far less impressive. Compare Scottish government expenditure of >£65bn against ~90% of £4.671m North Sea taxes and the oil accounts for less than 6.5% of government expenditure. To put it another way, the oil revenue is the equivalent of Scotland working through her lunchbreak. It’ll make her richer, but it won’t make her rich.

      • derek louden says:

        We’ve seen the highest level of capex since the 1970’s keeping current tax receipts low. Output will start rising again in 2015 and will be 50% higher by 2018. Tax receipts should be much higher by then. We can either use this resource to diversify our own economy or we can spend it on HS2 and the third runway at Heathrow.
        Whilst I’m concerned for my own country, let’s not forget the plight of Norway. If we vote “No” on Thursday, half of them could die laughing.

        • Hallucigenia says:

          @derek louden
          You can’t have it both ways – either you sustain 60,000tpa levels of capex or 40,000tpa levels of capex, otherwise you’re just playing games with the timing difference over a few years when what matters is the long-term sustainability of the Scottish economy. A spike here or there counts for nothing.

          Worth remembering that £4.671bn was based on $107.75/bbl Brent, 64.64p/therm NBP and $1.57/£ exchange rate – I invite you to speculate what the tax revenues will be this year. Even if Scotland did increase tax revenues by 50%, that’s still the equivalent of 45 minutes overtime rather than 30 minutes.

          As for Norway, did I miss the UK producing 1.8Mbpd and still finding 10tcf gas fields like Ormen Lange and 3bboe oilfields like Johan Sverdrup? We can no longer think ourselves equal to Norway.

        • Audrey Stewart says:

          Unfortunately, tax receipts will continue to be depressed by increasing operating costs, reducing prices and the Decommission Relief Deeds which guarantee tax relief at highest rate to operators for these costs. There is a tsunami of capital cost for decommissioning on the near horizon which has not been mentioned at all.

          • Euan Mearns says:

            Audrey, part of the psychology here is being pressed into not being realistic / pessimistic. My earlier analysis of oil showed this:


            The new round of developments will alter this a little, but the reality is that most places in the UK N Sea, the party is over. Decommissioning (if anyone can afford it) will hasten declines. All this cost falling to the Scottish exchequer is a bit of a nightmare. Just like all the ROCs falling on Scottish consumers. But obviously during negotiations FUK (RUK in common speak) will offer to carry their share of all these costs.

      • Am I the only person who is still slightly non-plussed by the supposedly more reasonable estimates of 16.5bn recoverables from the UKCS? If we make the maths simple and say 17bn over 34 years, then that equates to an annual mean production of 500bn barrels, sustained over 34 years. This involves more than doubling the present production rate and then sustaining it for a considerable length of time. Does anybody realistically think that this is achievable? I accept and agree with Derek that there will be production blips as new fields come on stream, but his modified production graph still shows a return to 2013 levels by 2020. I also realise that oil income is and will be an important source of revenue for Scotland, but Hallucigenia’s comments above are absolutely spot-on. Unfortunately, loose talk of £300,000 per man, woman and child in Scotland has been believed by too many folk.

        • derek louden says:

          Hello Andrew
          Malcolm Webb stressed two things for a successful future, first was the need to tackle the lack of drilling rigs. What we got was the new bareboat chartering regime and the removal of double taxation relief. Second was the lack of money to drill exploration wells. This could be dealt with by extending the Enterprise Investment Scheme (EIS) in this area to recognise the inherent risk. Neither of these issues appears to be on the agenda of the UK Government. Scotland will depend on the success of this industry for its wellbeing. It will have to listen and respond.

        • Euan Mearns says:

          Andrew, for those who have not seen it, the link below deals with reserves and taxation. The official 2P reserves are of the order 8 billion boe (oil and gas). The higher figure of 16 billion (actually 12 to 24 billion, Wood) assumes changes to taxation and regulation and is as good as pulled out of thin air. But one would have to accept that favourable changes to both would result in 2P reserves going up, especially with higher oil prices.

          Wood says;

          The Review believes that urgent and full implementation of the recommendations in this report will have the potential to deliver, at the low end, an additional 3-4 billion boe over the next 20 years

          So my reading is that 8 billion be produced without Wood and a further 4 billion with Wood, 12 billion seems a good number – that works out at 822,000 boepd (oil and gas) over 40 years – That I believe is fantasy. My own figure for minimum reserves based on decline analysis is 4.4 billion.

          The other harsh reality is of course decommissioning and what I’ve heard is that changes to the environmental standards applied has made decommissioning impossibly expensive. DECC after all is run by Greens trying to deliver the objectives of the Climate Change Act.

    • Euan Mearns says:

      For me, energy production is equivalent to wealth

      Ed, you know that I subscribe to that as well. The flip side of this debate is that the trade balance of the former UK (FUK) will be shot to hell if Scotland votes YES. Osbourne should have thought about that before he changed the tax rules a few months before the last Scottish parliamentary election that contributed to bring us to this point in Scottish history. The energy security argument is in fact for me one of the strongest on the YES side of the debate.

      Evidently The Industry feels that Westminster has not been a good or attentive friend over the years.

  8. A C Osborn says:

    Slightly off topic.
    Euan you might be interested in this experience of Ewan Morrison.

  9. So Hallucinogenia, are you saying that you think sustained production of 500bn per annum over 30-40 years is attainable?

  10. A bit of a change of pace here, but I think I’m still on topic.

    Having worked for many years estimating reserves and resources at mining projects I know it’s important that people understand exactly what is meant by a “reserve”, and particularly important when a lot hangs on it, as is presently the case with UK oil & gas reserves.

    So wearing my estimator’s hat I just read through the DECC definitions to see what they said.

    DECC starts off by defining reserves as: Discovered, remaining reserves that are recoverable and commercial. We learn from this that reserves are reserves, that they’ve been discovered, that they’re still there and that they’re commercially recoverable. A little short on detail, but so far so good.

    But immediately DECC contradicts itself by stating that not all reserves are commercially recoverable:

    Proven Reserves: are virtually certain to be technically and commercially producible, i.e. have a better than 90% chance of being produced.

    Probable Reserves: have a better than 50% chance of being technically and commercially producible.

    Possible Reserves: are estimated to have a significant – but less than 50% – chance of being technically and commercially producible.

    Then DECC proceeds to include the non-producible fractions (maybe 5% for proven, 30% for probable and 70% for possible?) in its reserve tabulations even though by DECC’s own definition they don’t qualify as reserves.

    And as far as I can tell from the tabulations DECC then assumes 100% recovery for all three reserve categories.

    No wonder people get confused. Or am I missing something?

  11. Euan Mearns says:

    ConocoPhillips plans to auction 24 pct stake in Clair oilfield -FT

    If BP and partners have been tight lipped about Clair then this is a good reason. I find it utterly extraordinary that ConocoPhillips should make this announcement 2 days before the independence referendum. There is a seeking alpha article out there on this subject that is the most inept and dumb piece of journalism I’ve ever seen.

  12. Mike says:

    Thanks for this Euan. I read all the recent reports announcing that there were these vast reserves of oil under the North Sea, and saw that these lay in the Kimmeridge Clay. Now it will be mainly geologists who will know what the Kimmeridge Clay formations are like, not the mass of people, and politicians, and bankers and economists who have had little or no training in any kind of earth sciences. My own reaction to the reports that it was the KM that was to be exploited, and by fracking, under the hostile environment of the North Sea was that this surely is a hoax. I live on the Kimmneridge Clay down sough in Bucks (admittedly covered by thin spreads of fluvioglacial deposits) and I know it is a thick, non fissile, water retentive, plastic zero porosity mass of soft clay. It does have a high carbon content – enough to gove the clay self firing qualities when put into brick kilns; but it seemmed to me that the chance of getting anything more than a meagre dribble at tremendous cost were remote.

    Alex Salmond was a bank man (RBS) who specialised in the economics and finance of the oil industry. How much understanding of geology he has we do not know. He must surely know, or ought to know, that though very large quantities of oil may well be available from under the North Sea, it is the rate of flow or rate of production per year that will be important in providing the annual revenues to fill all those budgetaryt gaps in an independent Scotland’s finances. Either he does not know that future production will likely be very low – in which case he is ignorant and a fool for not acquainting himself with the facts – or he is deliberatley obscuring the truth and misleading his followers – in which case he is a liar. Or, I suppose, he is a hopeless optimist. But something else to think about: he is a banker (pal of Fred the Shred) in origin, with numerous contacts in the oil industry in which he specialised. It would be in his and his pals’ interest to hype up the volume of Scotland’s oil reserves in order to attract the capital necessary to finance the developpment of oil exploitation by underwater fracking. It may be that the profitability if the fracking enterprise would be severely limited; but there would be fat payments and incomes for those who promoted the enterprise and attracted the capital invested. Scotland may not benefit, but the finance people and mining geologist/consultants and mining engineeers would make a hefty packet..

    • derek louden says:

      Hello Mike
      I was predicting a short-run increase in output of about 50% by 2018. Presumably I’m also ignorant, a fool and a liar? Is there a temple anywhere where I can fall down and worship you? I’d never considered an omniprescient god might be called “Mike” before. Well, there you go, there is one!

      • Mike says:

        Ironically, Derek, the name Michael is Hebtrew, and means “He is like a God”. So maybe you are right. But omniscience is not what I claim. What I do claim is to be a geologist. Not a mining geologist, not a geologist concerned particularly with extractin oil fro mthe earth’s crust, but a geologist nevertheless who does understand the science of rocks and minerals and the processes of winning hydrocarbons fro a reluctant planet. And the report that Scotland’s future may depend on the undersea fracking of Kimmeridge Clay fills me with wonder. I wonder how much oil will flow from the North Sea per annum from the Kimmeridge Clay. I wonder if there can be shale miracle from the North Sea, or whether the miracle that is promised will be as disappointing as the failed promise of gas fracking from Poland. And I wonder whether the promise of wealth from the declining North Sea will be as disapponting as the recent downgrading by c95% of the reserves in the Monterey shales in California. The reality is that exploitation by fracking is very costly and only worthwhile if the price of oil is very very very high. And I guess, though I am ignorant on these matters, that underwater fracking is even more costly than fracking on dry land as at the Bakken, or Eagle Point, or Marcellus.

        These may be inconvenient truths. I have long been sceptical of the promise of vast wealth in England to be got from fracking for gas supposedly duplicating the shale miracle that seems to be keeping the US economy afloat. Our beloved leader David Cameron is hyping gas fracking and offering a golden future to England/UK from all that wealth he imagines is to be got out of the ground in the South Downs, the Fyld, the Forest of Bowland etc. It will save us from energy independence on Middle Eastern and Russian suppliers. It will assure us of our energy futures etc etc etc. But really, he is speaking from ignorance. I suspect he studied no geology at Eton, and the majority of his advisers are likewise ignorant. Nor has he in his pre parliamnrtary career been associated with oil firms, geologists, mining engineers or whatever. He is utterly ignorant on these matters, yet is making wildly inflated claims about the golden future that awaits us. In this, he is a fool.

        But of course, all this could be said of Salmond too. He is either ignorant and a fool, or he is being mendacious, or he is being wildly over-optimistic. Alternatively, he being long connected with the oil sector while he was operating in the finance industry in RBS must surely have some understanding of the risks and uncertainties involved in the development of oil reserves. He should not be gambling Scotland’s future on such uncertainties. He should not be willing to possibly – and note I only say possibly – to destroy Scotland’s economy just for the pleasure of seeing the Saltire raised at Olympic ceremonies and the hope that the civic authorities at Falkirk or Pitlochrie or Thurso will be spending funds on raising Stues to wee Alex.

        • Euan Mearns says:

          Mike, I remain a shale sceptic. I’m not cast in the mould of against every form of energy production but I just don’t think it will scale in the UK onshore and most folks are not aware of the conveyer belt scale of the opps required. I do however, support 100% exploration efforts so that we know what might be there, and of course if “reserves” can be proved up the companies need to be granted consent to exploit them and make a profit.

          Moving offshore. Its rather like the Wright brothers deciding that their next move is to go to the Moon. Email from an industry friend today saying that long reach horizontal wells would cost 3* conventional. I think the Kim Clay will be tested and found to be far too expensive to develop.

          • Mike says:

            I fully agree with you when you say “I’m not cast in the mould of against every form of energy production” Euan. I live in a two car household in a rural area a long way from shops, work, entertainment, and I go on holidays using aeroplanes. My easy and ultimately selfish, middle class lifestyle is sustained by hydrocarbons. I do my part in adding to the carbon emissions into the atmosphere. I have no right therefore, to argue against the exploitation of fossil fuels whether coal, gas, or oil. And the same is true of a great many critics of the oil/coal industry. I have fitted onto my house – southern England, south facing, unobstructed by trees and buildings, solar PV panels and make a substantial income from them – only because of the FIT subsidy which can be said to take tax revenue from the less fortunate in society. I know that this form of renewable energy is intermittent and unpredictable, and is not a satisfactory alternative source of energy for the country – and that it quite obviously would be even less of value in the northern half iof this island. Wind and hydro are in greater abundance up there, and too in Wales and perhaps Cumbria, and ny arguement would be that the these resources should be shared equitably around this island.

            You say “if “reserves” ((= oil and gas) can be proved up the companies need to be granted consent to exploit them and make a profit.” The problem is that I fear that “proving” the exixtence of reserves becomes political. We know that in the USA, there is a lot of hot air about achieving energy independence through the optimistic estimates of future production from fracking of shale, and the exploitation of (Canada’s) tar sands. My understanding is that the oil companies are desperate for the continnued injection of capital, and of course that politicians for their own reasons have an interest in promoting “Drill baby, drill”. It is in their interest, therefore, to promote the idea that immense reserves and resources are available that willyield great economic and social benefits. Likewise, the energy sceptics it could be argued have an interest to minimise the amount of what is available. Both Cameron and Salmond belong to the former category – politicians who will maximise reserves and resources to promote their own particular political agendas. They are maximalists. I tend towrds being a minimalist. I remember someone back in History asking “What is truth?”. In exploitation of hydrocarbons from the earth, there is no easy answer. But I don’t trust politicians for their claim to the truth.

        • derek louden says:

          Hello Mike
          Like geologists I’m pretty certain politicians don’t set out to lie or to be fools or to be ignorant. From every party and from whatever walk of life they tap dance because they think they can make things better for people, like the OGX geologists who told Eike Batista that Tubarao Azul was a sure-fire winner. It doesn’t always work out as they intend (too much gas & not enough oil leading to fried ESPs). I’m pretty certain Alex Salmond looked across the North Sea and saw a similar country to our own doing a bit better and thought he could get a bit closer to it in terms of achievement. I live in a nice house and have a comfortable life. The street next to mine has a foodbank. We could make things worse with a “Yes” vote, but I’d like to think they might possibly get better. Having dismissed the prospect of a deity named Mike, I’ll see what I can do about avoiding the proliferation of altars celebrating Alex Salmond as well!
          I don’t know anything about the Kimmeridge Clay and will bow down to you on that one. Perhaps you could do me a favour and look at the ridge that both the Clair Field and the Lancaster Field appear to be on and tell us if there’s a better chance there?

          • Mike says:

            Re politicians, Derek: their job is to be optimistic. They are traders in hope, merchants of a golden future, but rarely able to deliver. They beguile, and too often lead to disaster and chaos. No politician ever won an election by promising blood,toil, tears and sweat, or saying NO, or THOU SHALT NOT. Obama offered hope, and change, and “yes we can”. But seven years later,Guantanamo is still operating, the troops are still in Afghanistan, Gaza still gets blasted by America’s ally, and the US is planning to return to Iraq, the drones are still blasting wedding parties, and the black population in America has not noticeably improved its place in American society. Only in healthcare .has Obama achieved anything like what was promised, and that seems something of a dog’s breakfast. Adolf promised the Germans change and hope and advance from the humiliation of Versailles, andf came to power in a democratic election in 1933. Well, he did fulfil the promise in the short run, but in the longer run well……Dresden, Stalingrad, Auschwitz, a divided Germany, a devastated continent, wrecked cities c50 million dead in Europe etc. Politicians promise before they govern. Roosevelt promised and fulfilled, but my feeling he is a very rare one. And maybe Maggie did too – but is she one whom we should elevate to immortal status? Not in my book. Likewise Reagan. Hollande. Chavez. Interestingly, the politician on this island who most parallels Salmond in his optimistic promise s of a golden future that beckons for his country/nation is surely Farage. Both want to withdraw their country from a union. Both try to convince us that we are better apart from other nations than together. Both wish to set their nations adrift isolated in a stormy ocean. Both minimise the economic chaos that would surely ensue if their countries ripped themselves from the larfger union. Both have the message that we are different from the rest of humanity, and is some way special. Both offer an illusory independence – from Westminster or Brussels. Both are very plausible – to their followers. The only difference I can see is that Farage is a silly ass, a living Bertie Wooster figure, while Salmond is a very clever, Machiavellian, and definitely not a silly ass. I appreciate these are sentiments not relevant to a blog devoted to energy matters, so I apologise,. But my justification is this this particular post is about the political significance of the oil possessed by this island and its inbhabitants,

            As for the Clair and Lancaster fields: of course I shall look at their potential. I admit,they had not so far figured in my understanding of the energy future of this island. In the latest varying sets of figures of the hydrocarbon reserves in offshore Scotland, have these been included? Are Cameron and Salmond aware of these and have they included them in their , er, propaganda?

          • derek louden says:

            Hello Mike
            They’re not included in the propaganda from either party & I’ll need to update my own report as the results of the appraisal well didn’t appear until after it was completed.

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