AS the hopes of a Shetland oil boom sparked by a pioneering explorer fade, some giants have made clear they still see potential in the area. However, firms in the hard-pressed North Sea supply chain and taxpayers alike may be unwise to expect to get more than crumbs from their table.

While the industry grappled with the deep slump triggered by the crude price plunge from 2014 to 2016, the West of Shetland area provided a ray of light.

Optimists highlighted the potential of relatively under-explored acreage they felt sure contained enough oil and gas to extend the productive life of the wider North Sea area by decades.

Their confidence was encouraged by the success of a small firm that began life in a garden shed in Surrey, and which made promising finds in a ‘basement’ layer of granite off Shetland. This had been overlooked by an industry that focused on the sandstone layer above.

READ MORE: Oil strike West of Shetland fuels hopes of boom in frontier area

The firm concerned, Hurricane Energy, helped generate so much excitement about West of Shetland that energy giant Centrica bought into its acreage through its Spirit Energy business and funded $180m drilling work.

After starting production from the flagship Lancaster field in June 2019, Hurricane commanded a stock market valuation of £1.2 billion.

In the two years since the company’s capitalisation has fallen to a tiny fraction of that, around £16m at the last reckoning.

The slump followed production reverses on Lancaster for Hurricane, which parted company with founding chief executive Robert Trice in June last year.

The setbacks prompted management to reassess the potential of the finds made by Hurricane and led ultimately to the company slashing estimates of how much they might contain.

The oil market turmoil triggered by the coronavirus crisis added to the company’s woes by making it incredibly difficult for oil and gas firms to raise funding.

READ MORE: Shetland oil pioneer warns investor interest in sector has 'drastically reduced' 

With $230m bonds due for repayment next year, Hurricane plans to complete a debt-for-equity swap that will leave bondholders with 95 per cent of the company’s shares.

Directors of Hurricane have said there appears to be no other way of keeping the company afloat, leaving shareholders with a bitter pill to swallow. Their approval is not required for the planned debt to equity swap anyway.

Hurricane Energy shares were selling for just 0.75p each yesterday, compared with around 60p two years ago.

The company plans to focus on the relatively small scale early production system installed for Lancaster. Hopes that this might pave the way to a much bigger full field development and to Hurricane bringing other finds into production look likely to remain unfulfilled, barring a dramatic change in market conditions.

While crude prices have recovered some ground amid the rollout of coronavirus vaccines, the outlook for the market remains highly uncertain.

It is notable that no bids have been made for Hurricane in recent months, even at a bargain basement price.

READ MORE: Scottish Gas owner slashes valuation of Shetland exploration acreage

Centrica put its majority stake in Spirit Energy up for sale in 2019.

And yet one of the biggest independents operating in the North Sea, EnQuest, has just shown that it sees potential in a project championed by a Shetland pioneer that came to grief during the last downturn.

EnQuest last month agreed to buy a controlling interest in the Bentley heavy oil find East of Shetland from a company called Whalsay Energy in a deal worth up to around £23m. Whalsay was formed by creditors of Xcite Energy, which spent years working on plans to develop Bentley in the belief it could contain around a billion barrels oil.

The holders of $150m bonds issued by Xcite put the company into liquidation in 2016 amid the last downturn.

EnQuest has not given any details of what it will do with Bentley but has made clear it reckons the field could be commercially viable. It bought a stake in the Bressay heavy oil find nearby last year for an initial £2m.

EnQuest said yesterday that Bentley offers long-term potential development opportunities and synergies to add to those at Bressay.

READ MORE: Plans to develop billion barrel oil field off Shetland set to be revived

There has been more activity in the East of Shetland area over the years than west of the isles meaning there is more in the way of production infrastructure already in place.

Majors such as Shell and BP invested heavily in the West of Shetland area during the last downturn but focused spending on a relatively small number of plum fields such as Clair Ridge.

Shell and BP have both retrenched in other parts of the North Sea in recent years. This has involved them selling off assets deemed non-core and shedding hundreds of jobs.

The process may have a way to run. BP is in talks to sell stakes in the Andrew and Shearwater fields after a deal it agreed last year to offload them to the former Premier Oil fell apart.

The West of Shetland area may not be immune to ongoing rationalisation moves. Last month BP suspended production from the historic Foinaven field. This became the first field brought into production west of Shetland in 1997.

READ MORE: Future of historic West of Shetland oil field put in question

BP stopped pumping oil from Foinaven after deciding not to try to extend the life of the production vessel used on it and related fields.

The company said it was evaluating options to develop the estimated remaining resources of up to a possible 200 million barrels from the Foinaven area, but gave no indication of what that might mean.

Shell boss Ben van Beurden has sounded positively bullish about West of Shetland of late.

In February he told reporters the company saw lots of running room on the United Kingdom Continental Shelf (UKCS) and West of Shetland was where it saw most opportunities.

Last month Shell underlined how much money it is making in the nine oil and gas regions it has decided to focus on, which include the UKCS.

However, the company is unlikely to provide a spur for firms in the North Sea supply chain. These have been battling tough conditions for years, which have involved two deep downturns separated by a short break.

Shell has made clear that it will be very hard for big oil and gas developments to win approval as the firm looks to increase investment in areas such as renewables.

In April last year the company shelved plans to develop the bumper Cambo find West of Shetland.

While Shell bosses have hailed an improvement of the performance of the North Sea business, the Treasury does not appear to have felt much benefit.

Shell was repaid around $100m by UK taxpayers in 2020. This reflected the impact of generous tax breaks that were introduced in the last downturn.

Filings by Shell suggest it has been repaid hundreds of millions of dollars in respect of the costs of decommissioning the giant Brent field in recent years.

READ MORE: Costs of North Sea tax breaks laid bare as decommissioning bills mount

On Monday the Oil and Gas Authority said the cost of decommissioning North Sea assets could exceed £50bn. The spending will be tax deductible.

Environmentalists reckon the scale of the tax reliefs granted to the industry make a nonsense of claims that it is a national asset. Campaigners have lunched a bid to take the OGA to court on the grounds that the authority is meant to be maximising the economic recovery of the North Sea’s reserves but the activity it supports is actually uneconomic.