All eyes on North Sea oil

February 24, 2014

The UK’s North Sea oil and gas industry was put under a national spotlight today, both by the industry and the nation’s politicians.

The industry and government welcomed the outcome of industry veteran Sir Ian Wood’s UKCS Maximizing Recovery Review final report, which includes recommendations to set up a new industry regulator and was hailed as marking a “watershed” moment in the history of the North Sea. 

However, some of the finer points of Sir Ian’s final report on the future of the basin were consigned to the shadows of the Scottish independence debate, with both the UK Government and the Scottish government clamoring to make their cases for or against unity. 

Image: (L-R) Malcolm Webb, CEO Oil & Gas UK, Ed Davey, Energy Minister, and Sir Ian Wood. 

The day saw British Prime Minister David Cameron and Scotland’s First Minister Alex Salmond descend on Aberdeen. Cameron flew by helicopter to BP's ETAP facility in the North Sea before holding only the second UK government cabinet meeting in Scotland for more than 90 years in Aberdeen. 

UK Energy Minister Ed Davey led the launch of Sir Ian’s report—at the Aberdeen offices of Oil & Gas UK. 

But while the politics focused who would take control of the UK’s offshore oil and gas reserves, Sir Ian, former chairman of engineering and services firm Wood Group, spoke about an “individualistic” industry which had seen too many “failures, disputes, and lost opportunities”. 

The report was commissioned by Davey last year after a sharp decline in production and exploration drilling on the UK Continental Shelf. Production has fallen 38% in the past three years and exploration drilling fell to a record low in 2011, with just 14 exploration wells drilled. The fear is that if exploration drilling does not increase reserves will be lost because the infrastructure will not be in place through which to route it. Further, the fields that are found tend to be smaller, ownership more complex, and ability to agree access to third party access to infrastructure has been notoriously difficult.

“The current rate of exploration drilling is totally inadequate to exploit the undiscovered potential of the UKCS within the lifespan of existing infrastructure,” the report says.“To highlight the size of the challenge, based on exploration performance seen over the last 4-5 years, the review estimates that less than 3billion boe will be discovered by 2030. Even increasing exploration drilling back to that seen prior to 2008 will only lead to an additional 1-1.5billion boe being discovered by 2030. A step change in approach is needed.”

Key areas to address, said Sir Ian, were improving collaboration between operators to create clustered field developments, an improving exploration rates.

The industry, with government, has already been trying to tackle some of the challenges. The Exploration Task Force (ETF) was recently created by the industry/government body PILOT. The ETF has been looking at; opening new or neglected plays on the UKCS; improving use of seismic imaging, other new technologies, and the sharing of data; collaboration with other PILOT initiatives; and a comparative review, to see how the UK’s regime compares with those in other countries around the North Sea.

But, it has been acknowledged that the Department of Energy and Climate Change, which oversees the licensing regime in the UKCS, has been under resourced and so unable to cover as much as it might wish. Sir Ian’s report stressed the urgency for more to be done and faster.

Summarizing the report's main recommendations, he said there should be a new shared strategy for maximizing recovery from the UKCS, with clear commitment from government, a new arms-length regulatory body with additional powers to those under the existing regime, with prime focus on greater collaboration in industry, to enable regional, or cluster, hubs and field developments, and a reduction in delays and complexity.

He emphasized that the new regulator’s role would focus on stewardship, rather than regulation. The review outlines six sector strategies, covering: exploration, asset stewardship, regional development, infrastructure, technology, and decommissioning.

The largest section among these was exploration. Read more:

Speaking at the press briefing, Davey said an “implementation team”, to carry out the review’s recommendations, was already running, and that he hoped to appoint a chief executive for the new regulatory body by summer, with a shadow body to be formed by autumn this year. Legislation to form the new body would also be put to the UK government’s next session.


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