Aberdeen’s oil industry has pioneered global offshore harsh environment exploration, but it will need to “innovate its socks off” to maximize the North Sea’s remaining potential and remain competitive globally, a special SPE event in the Scottish city heard last night.
The event was being held as part of the SPE Aberdeen section’s 40th anniversary celebrations and included senior executives from BP, Shell, TAQA Bratani and Schlumberger.
Future 2015 SPE president, Statoil executive Helge Hove Haldorsen (pictured right), also attended and gave a captivating keynote address, describing the North Sea industry, with the SPE at the heart of it, as having “broken the wind” for areas like West Africa, Norway and deep water provinces, by the flying at the front of the V and pioneering offshore harsh weather environment exploration.
Image below: The SPE Aberdeen section's oil rig-shaped 40th anniversary birthday cake, which was piped on stage at last night's event.
Having paved the way for so much of the industry, he said Aberdeen, and SPE members, now needed to “invent E&P 2.0.” “There is still 40 billion boe estimated in the North Sea, but there is a (recoverable) range and that will depend on the next generation and erasing the “im-”’s from impossible (alluding to statements made in the past suggested manned flight and travelling to the moon would be impossible, but were then disproved)."
"I do not think we are running out of oil, but we are going to run out of cheap easy oil," he continued. "Oil prices are flat, costs are going up, by a factor of four since 2001, so we have a problem. We have to adapt. We need innovation. The industry needs to think of itself as a safe, high-tech manufacturing company and every now and again come up with new disruptive technology—standardize, repeat, relentless improvements in the supply chain.”
The panel debate discussed the future of the UK North Sea industry and set out what they felt were the main challenges—and opportunities.
Many feel the basin is at a critical stage. Costs have risen, as have the technical challenges, while production has declined, making the economics of the basin tough in a global environment. Earlier this year, Sir Ian Wood’s government commissioned report setting out how to maximize recovery of the UK North Sea’s remaining oil and gas set out a number of recommendations, including a new regulator, which is now in the process of being set up in Aberdeen. A government review is also underway to assess the tax regime in the North Sea, which many see as key to making future developments viable.
Glen Cayley, Vice President Upstream, Shell UK (pictured right), said: “The Wood Report was an important exercise but the important work is going on the fiscal review. The tax is too high. Putting the highest rate up to 81% in 2011 was singularly unhelpful. They (Government) have recognized that and tried to put in some fixes, but it is too complex. When you spend more time with your tax advisor than your reservoir engineer it needs to be simplified.”
Gordon Ballard, Chairman and Country Manager, Schlumberger, set out the situation starkly. He said: “Some people might call it the last roll of the dice. If this doesn’t work it is hard to imagine what you will do. Many companies use the UK for their center of operations, but if there are no operations offshore Aberdeen, they will leave.”
Pete Jones, Managing Director, TAQA Bratani, said “There’s still a huge amount to play for in the North Sea. There are a huge amount of reserves there. We have developed new drilling and development techniques. The challenge is a question about continuing to be economic and competitive in the global environment. We need to focus on basic production efficiency and cost control, working with the supply chain, working closer and in a different way. The cost of development projects means they are struggling to get sanctioned so it is hardly surprising exploration is struggling given the technical challenges, innovation challenges. But the critical element is fiscal change to support that. We are at a difficult point in the industry. Collaboration will get us so far. There will need to be something else to keep us going and maintain that momentum.”
Cayley also said the industry would have to “innovate its socks off to get what is left.” “There is ultra-HPHT, heavy oil, difficult tight gas, troublesome reservoirs and targets difficult to see that require break through imaging.”
Asked about how much the industry collaborates, Cayley said North Sea operators had a long history of collaboration. BP and Shell collaborate closely in the UK sector. “The challenge facing the industry now is finding ways of collaborating across the whole basin, sharing best or better practice,” especially when it comes to operations.
Trevor Garlick, Regional President BP North Sea, said there was potential for a lot more collaboration, emphasized by the Wood Review. “What we are trying to grapple with now is rather than talking about it, we have got to crystalize what we need to do, because the industry is facing some significant challenges.”
Garlick said the UK Government Treasury, industry and regulator working together more constructively would help maximize recovery rates. But, action would need to be taken urgently, he said, and it will not be easy unless the industry is aligned with a regulator that facilitates, not just regulates.
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