The UK’s new offshore oil and gas regulator is to require the top 20 North Sea operators by volume to present stewardship plans by April, as part of a string of actions to turnaround the industry published yesterday (25 February).
Stewardship of the basin’s assets is just one of the newly formed Oil and Gas Authority (OGA)’s concerns about the future of the UK North Sea (UKCS), most already laid out by Sir Ian Wood’s UKCS Maximizing Economic Recovery Review, published a year ago – before oil prices almost halved. A key criticism of the industry has been poor asset stewardship and low production efficiency levels – at just 60% on average.
Image: Oil and Gas Authority CEO Andy Samuel.
Specific concerns relate to the possibility that fields, could be prematurely decommissioned due to their lack of profitability, leading to longer term lack of confidence – and therefore investment – in the basin, and lack of infrastructure to develop smaller fields.
The measures are included in OGA CEO Andy Samuel’s “Call to Action” report, his first report since taking up the new post on 1 January.
The report says the OGA will also expect operators to “significantly modify commercial behaviors to align with MER UK August 2015 Reinvigorate and intensify drives to improve efficiency with a target of 30% - 40%, working with the OGA to allow effective monitoring of progress.”
The report also calls for “rigorous economic assessments of key production hubs to explore the drivers of continued investment, including fiscal levers,” by the end of 2015.
“The UKCS has been finding it increasingly difficult to compete for international investment,” the report says. “Rising costs over many years, a fiscal regime that had not evolved with the fortunes of the basin and the need for stronger regulatory direction, have complicated the challenges already faced by operators using ageing infrastructure and tackling more demanding fields. The decline in global oil prices, which began in the middle of 2014, has only magnified the existing challenges for the UKCS.”
Samuel says there is an “urgent need” for industry, Government and the Regulator to take proactive and sustainable action.
The report set out two key risks that require “urgent focus”:
The risk that the profitability of producing fields will be insufficient to attract continued investment, leading to premature decommissioning of assets
The risk that confidence in the future potential of the UKCS will continue to decline, resulting in critical long-term investment not being committed
Four priority areas were set out:
Leadership, behaviors and culture: A cultural shift in the industry is required for companies to swiftly adapt their behaviors to tackle the challenges ahead.
Wood Actions: The UKCS MER Review contained four key recommendations and 29 actions to achieve the six sector strategies included in the report for the OGA to implement with industry.
Fiscal reform: The Government has recognized the need for fiscal reform and the OGA is working closely with HM Treasury sharing detailed views ahead of the March 2015 Budget.
Cost and efficiency: Industry urgently needs to take action to create a more competitive and efficient cost base to ensure the UKCS attracts the necessary investment now and in the future.