Extra oil will be squeezed from the Magnus field

He said construction work could begin on the �500m Clair project in 2002 and said the company was now more confident about the development than ever before.

The field was discovered in 1977, but presented the company with huge technological challenges.

Those difficulties, combined with the price of oil, meant that the engineering contract is only set to be awarded now.

Speaking at an event to celebrate the 25th anniversary of oil production from BP's Forties field, Sir John also announced details of the new pipeline into Sullom Voe.

The scheme will use excess gas from the new Atlantic Frontier to squeeze extra oil out of Magnus, the country's most northerly oil field.

Work on the pipeline is expected to start next year, creating hundreds of construction jobs.

Jobs will be secured at Sullom Voe

The project will also secure the long-term future of the Sullom Voe terminal, along with hundreds of jobs on Shetland.

The enhanced oil recovery scheme will see the laying of a gas pipeline from the Foinaven and Schiehallion fields west of Shetland to the Magnus field, east of the islands, via the Sullom Voe terminal.

The gas will be injected into the Magnus oil reserves, a process which is expected to increase the production from the field by an extra 50m barrells and extend its life beyond 2015.

This pipeline will have the longer term potential to provide a way of recovering gas reserves which are currently stranded west of Shetland.

Scotland Office Minister Brian Wilson said the confirmation that the project was going ahead was "excellent news for the oil and gas industry in Scotland.

"I am particularly pleased to see this major consolidation of activity west of Shetland."

New projects

Other projects in the investment package include plans to install a fibre optic communications link between Scotland, the central North Sea and Norway and moves to provide power to offshore fields from onshore generators.

The news follows Shell's announcement of six new oil projects which will see spending rise by 20% to $1.2bn next year.

The company unveiled the increased spending, made possible by the continuing high price of oil and advances in engineering technology, as it brought its new Shearwater platform into operation.