Earlier this week the Hurricane Energy discovery of “up to a billion barrels” of oil in the North Sea was reported as some kind of energy miracle. After 17 years of severe production declines, Scottish oil is back. Suddenly IndyRef2 looks far more likely to deliver a vote for Scottish independence.
In reality, the popularity of the story owes more to Investment hype and over-optimistic politics than to any serious change of fortunes in the oil industry. As Auslan Cramb in the Telegraph reminds us:
“The discovery is significantly larger than the average find in recent years, which has been about 25 million barrels, but it is still a fifth of the size of the Forties field, which contains about five billion barrels, with around two billion already recovered.”
In other words, by North Sea standards, the new discovery is small. Indeed, the up to one billion barrels figure is itself merely an estimate of the resource (the amount of oil in the ground) rather than the recoverable reserve (the amount that can be economically recovered). And another thing – the area west of Shetland isn’t really the North Sea; it’s the North Atlantic, where drilling conditions are far less favourable, making for higher recovery costs.
At this point we do not actually know how much recoverable oil there is. As Ian Lyall at Proactive Investors notes:
“Hurricane Energy Plc prompted by a spike in web traffic to an old Proactive report on the Halifax well, which was spudded in mid-January with results expected at the end of the first quarter. Well folks, Q1 ends next week, which might explain the ridiculous number of eyeballs trained on our January Hurricane coverage…
“It is also possible that the Halifax well may draw a blank (breaking Hurricane’s winning streak with the drill bit), or another possible outcome is that it finds oil but in a distinctly separate reservoir.”
Hurricane Energy is keen to raise more than £300m of new investment for an early production system (essentially drilling a small corner of the new field to see if it can recover a fraction of the oil at a profit). No doubt this lay behind the near hysterical hyping of the story. Hurricane Energy shares leaped from 11p to more than 60p as news of the “new discovery” trended on social media. This was no doubt assisted by those supporters of Scottish independence who look back longingly at the glory days of North Sea oil. But at a mere (at best) billion barrels (roughly two years of UK oil consumption) deep beneath the Atlantic, it may just keep the oil industry going, but the new Saudi Scotland it most certainly isn’t.