In an environment of uncertainty regarding sovereignty of lucrative UKCS resources, oil companies operating in the mature North Sea Basin are being urged to do what the London and Scottish parliaments seemingly cannot do, and work more closely together.
In June 2013 the UK government commissioned an independent review of offshore oil and gas recovery – led by industry stalwart Sir Ian Wood – with a remit to engage with companies holding interests in the UKCS, along with institutions such as HM Treasury, the Scottish government and regulators from the USA, Norway and Australia. The resulting report, published in February, suggests that the UKCS could deliver an additional 3–4 Bbo over the next 20 years, worth about £200 billion to the economy.
The report recommends that industry works closely with government to implement the UK Oil and Gas Industrial Strategy, and to develop the strategy for maximising the economic recovery from the UK Continental Shelf, by establishing a new sector regulator, focusing on six key areas:
Exploration Strategy: ensure that economically recoverable resources are fully explored, appraised and exploited in a timely manner, by an appropriately tailored licensing regime and by encouraging data sharing.
Asset Stewardship Strategy: ensure operators account for the proper stewardship of their assets, with consideration to adjacent resources.
Regional Development Strategy: development on a regional, rather than a field basis, with the aim of maximizing economic recovery from clusters of fields. License holders should make their infrastructure facilities available to third parties.
Infrastructure Strategy: prolong life of the existing infrastructure and achieve investment in new key infrastructure.
Technology Strategy: ensure existing technologies are deployed to their full effect and that relevant new technologies are developed to maximize recovery.
Decommissioning Strategy: achieve maximum economic extension of field life and ensure key assets are not decommissioned prematurely.
The UK’s oil and gas industry is of national importance, playing a vital part in economic life and making a substantial contribution to energy security. For decades the sector has been one of the UK’s major industrial success stories, a key contributor to growth, jobs and tax revenue. (Source: DECC)
It is hoped that by implementing these strategies, operators will avoid unnecessary costs, delays and complexity in their dealings with one another. Key to the process is the need for industry to make available suitably qualified and experienced senior personnel.
Commenting on the present regulatory function, Sir Ian said it, “…has halved in size over the last 20 years and now lacks the broader capability and resources to perform the much more demanding stewardship role that is required…The (new) proposals and limited new powers are much more about stronger and better stewardship …as opposed to more regulation…”.
The UK government has accepted the key recommendations and Sir Ian is to chair an Interim Advisory Panel on setting up the new regulator. A CEO could be in place by the summer of 2014 and stakeholders are being invited to participate in the process.
Industry body, Oil & Gas UK, welcomed the report. Chief Executive Malcolm Webb said, “…We strongly welcome the proposal for a new arm’s length regulator… The report is a game changer.”
It promises to be an interesting few months ahead as the new regulator emerges, the commitment of the industry to bear the costs is tested and the referendum on Scottish independence nears its climax – the outcome of which may provide the regulator with its first and potentially biggest hurdle.
Annual production from the UKCS (oil and gas combined). Production from the UKCS peaked in 1999 at 4.6 million boepd and declined at around 7% per annum to 2010 in a period of constrained investment. To-date the UK has produced more than 42 billion boe. This is now a mature province, yet one with significant further potential including some new plays and frontier areas. It is estimated that a further 12 to 24 billion boe could be produced with ultimate recovery in a large part dependent on how well the UK manages the overall development of its remaining resources (source UKCS Maximising Recovery Review: Final Report, DECC)
Annual capital expenditure on hte UKCS (2-13 money). Dynamics of the UKCS in the early days of production were very different than today. Throughout the 1970s and 1980s, a small number of very large fields dominated production, whereas today’s production comes from >300 fields operated by a diverse mix of companies. The average UKCS discovery size over the past ten years has been 25 million boe and 90% of fields in production on the UKCS are producing less than 15,000 barrels of oil equivalent per day. Recent fiscal allowances introduced by HM Treasury have resulted in a surge of new field developments with capital spend at £14 billion last year (source UKCS Maximising Recovery Review: Final Report, DECC)
Further information
UKCS Maximising Recovery Review: Final Report. Sir Ian Wood. 24th February, 2014, Crown copyright
