Although the prospects are relatively small, global investors are getting excited about new oil finds in Britain. Simon Wilson reports.
Why is onshore oil in the news?
Last week, a small energy firm, Norwest Energy, announced it had found potential oil reserves of somewhere between 3.4 million and 53.9 million barrels in the southwest of England, based on its analysis of ground surveys and seismic studies.
The company holds three licences, together with its partner Wessex Energy, and has been investigating oil prospects at seven locations in the Wessex Basin, a geological formation that runs from the south coast of Dorset up into Hampshire and takes in the Isle of Wight. It’s very early days for the prospects: it could be as much as two years before more precise numbers can be put on the estimates.
But the firm is certainly upbeat: according to Norwest’s chief executive, “the resource evaluation has determined that every one of these leads has the potential to exceed the minimum threshold of 400,000 barrels” necessary to make extraction economically viable.
Get set for an oil rush then?
Not exactly. Britain still has less than half a percent of the world’s proven oil reserves – and the vast bulk of these are under the North Sea. Currently, onshore oil makes up less than 1.5% of the UK’s total output. And the overwhelming majority of that is accounted for by just one site: BP’s Wytch Farm on the Isle of Purbeck at Poole Harbour in Dorset. This is the largest onshore oil field in Europe, producing around 7,800 barrels per day at present and more than 400 million barrels in total so far in its 35-year life.
Nevertheless, while oil prices remain relatively high, there’s no doubt that the sight of ‘nodding donkey’ oil wells and drilling rigs is likely to become more commonplace in parts of Britain’s countryside.
Where will they be drilling?
There may be more finds to come in Dorset. Although the Norwest finds are smaller than Wytch Farm, they are part of the same geological formation, increasing the chances of finding similarly good-quality oil nearby.
Just along the south coast from Dorset, Star Energy already has nine producing oil fields in the Weald Basin, stretching across Hampshire, Sussex and Surrey. One of these – Palmers Wood – attracted attention in 2006 when Harrods owner and local landowner Mohamed al-Fayed sued for trespass, and was awarded a 9% share of the profits.
But the biggest rival region to Wessex is the East Midlands, with 18 producing wells already. The series of carboniferous rift basins across parts of Lincolnshire, Nottinghamshire and Leicestershire are rich in oil deposits; Welton, operated by Star Energy, is the country’s second-largest onshore field, producing 1,800 barrels per day.
Is this really worth doing?
Some global investors clearly think so. The UK’s onshore sector might be tiny, but companies from around the world are getting involved. Malaysia’s national oil firm, Petronas, acquired Star Energy two years ago, and companies from the US, Australia and Canada are also involved in the sector.
Around the world, the pressure to feed modern economies, running on predictable, just-in-time delivery of affordable oil means that where good-quality, easy-to-extract oil exists – as in the UK – there will be commercial interests eager to exploit it.
Why is Britain a good place to look?
There are disadvantages to working onshore in the UK. For example, it can be a relatively slow place for explorers to look for oil, due in large part to the scarcity of rigs. But there are advantages, too: not least the clear and reliable legal framework and supportive government.
And the fact remains that extracting onshore oil is much cheaper than getting it out from under the ocean. As Mark Abbott of Egdon Resources puts it: “It’s not Saudi Arabia or even the North Sea. But if we find oil, it’s quick and easy to put in small, low-key production facilities and then tanker the oil out to refineries.”
What about the environment?
Environmental concerns among local residents are always going to be a factor in the granting of licences. But according to the chairman of Wessex Exploration, David Bramhill, “techniques and technology are now so advanced that you do not have to drill exactly above where you have found oil. With horizontal drilling techniques you can actually set up five or ten miles away”.
In fact, says Bramhill, “there is a lot more onshore oil production in this country than people realise because, for most of the time, it goes unnoticed”. The trick, say the oil firms, is good engagement with local communities and doing everything to minimise disruption. Onshore oil will never be a large-scale business in Britain, but it is a growing sector where there may be niche opportunities for investors.
Which companies are involved?
Norwest Energy has assets in Australia and Britain, including a site immediately to the north of BP’s Wytch Farm. It is listed on the Australian stockmarket rather than London.
Star Energy, formerly a public company, is now a wholly owned subsidiary of Petronas.
Wessex Exploration, Egdon Resources and Northern Petroleum are all public companies listed in London; Northern Petroleum has onshore interests in the Netherlands and Italy as well as its UK operations.
Another onshore player is Europa Oil & Gas, which is planning to increase output in its East Midlands operation and use surplus cash to fund onshore exploration in Romania and southern France.