SMART MOVE INTO SMALL OIL FIELDS

North Sea firm ventures where the majors are reluctant to go

Two directors of a specialist offshore technology company have set up a venture to develop about 500 North Sea fields that large operators consider too small to be viable.

The Venture Production Company will use innovative technology and finance methods to produce hydrocarbons from fields with under 10million barrels of recoverable reserves.

Government figures indicate such accumulations could contain about three billion barrels, but their size and distance from platforms have made them unattractive to established North Sea operators.

VPC believes it will be able to exploit the fields for a commercial return, and is considering at least three potential projects.

Two of its four directors are with Petroleum Engineering Services, which specialises in `smart’ technology for controlling subsea wells by computers. Mike Fleming, VPC’s commercial director, said such technology, allied with floating production systems, was likely to figure large in the company’s plans, along with innovative financing methods and contracting strategies.

Fleming said that in some cases the overhead structures of big operators were too large to apply economically to such small developments, while others no longer had the technical resources to devote to minor prospects.

The big North Sea players are already divesting such accumulations to smaller companies in what they see as a `secondary market’.

BP’s disposal last year of its stakes in the Clyde, Buchan and Beatrice fields – all of which have small satellite prospects – to Talisman Energy was a recent example.

The funding options VPC is looking at include raising non-recourse bank debt and tapping the capital markets – possibly using share derivatives. The venture capital group 3i, which has taken a 25% stake in the company, is examining these options.

A stock market flotation is a further possibility.

VPC will also look for the contractors involved to take on some of the financial risk for a share of the returns.