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By Sarah Young
LONDON, March 28 (Reuters) - British oil group BP ispressing ahead with a $500 million-plus investment in theShetland Islands, a shot in the arm for the government's effortsto revive the North Sea oil industry to help kickstart aflagging economy.
Though North Sea output has fallen by about two thirds since2000 and a surprise tax increase in 2011 led to dire predictionsabout its future, industry body Oil & Gas UK in Februaryforecast a pick-up in production from 2014, fuelled by renewedgovernment support and a surge in investment.
BP's investment, which could pave the way for a big add-onproject at its Clair field, coincided on Thursday with agovernment effort to boost investment in the oil and gas sector.
Business Minister Vince Cable and Energy Secretary Ed Daveywill travel to Aberdeen, known as the oil capital of Europe,where they will pledge government commitment to a stable taxregime for the industry, and announce plans to develop Britain'ssupply chain further and try to plug an engineering skills gap.
Under BP's plans, it will drill at least five appraisalwells in the giant Clair field off the west coast of theShetland Islands, north of Scotland, to discover whether it isworth further development.
BP and its Clair partners, Shell, ConocoPhillips and Chevron, in 2011 said they were investing4.5 billion pounds in a second phase of development for thefield, which first started pumping oil in 2005.
"If successful, the appraisal programme could pave the wayfor a third phase of development at Clair - this is now a realpossibility," BP's North Sea regional president Trevor Garlicksaid in a statement.
Big oil companies have tended to look beyond the North Seain recent years, favouring new oil provinces with morepotential, but the rich geology of the areas around the ShetlandIslands has kept them hooked.
The British government has been at pains to reclaim thetrust of oil and gas industry after the 2011 shock tax rise.
New tax breaks, for older oil fields, heavy oil fields,deep-water fields and clarity over field abandonment tax reliefhave over the last two years helped give companies theconfidence to move ahead with new plans.
BP's plan for Clair follows other recent new investments inthe North Sea, including a $7 billion project announced byNorway's Statoil in December and a 1.6 billion pound($2.4 billion) investment by Canada's Talisman Energy two months earlier.
"This is an expanding industry. We can either help createmore jobs and opportunities across the UK if we get this rightor see work going overseas if not," Business Minister VinceCable, who once worked for Shell, said in a statement.
Britain's oil and gas industry contributes more togovernment coffers than any other sector and paid over one fifthof total corporation taxes in 2012. It also employs over 400,000people including its supply chain.
The government said it will invest 7 million pounds toestablish a new centre for subsea engineering and help theindustry by establishing a programme to retrain ex-militarypersonnel to work in oil and gas.
BP, which has the biggest stake in Clair at nearly 29percent, said that it had already started drilling the firstappraisal well and it could complete up to 12 wells over twoyears, depending on the results of the first wells.
