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UK Government Launches Review of UK North Sea Oil & Gas Industry

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UK Government Launches Review of UK North Sea Oil & Gas Industry

LONDON - The U.K. government is launching the first review in more than 20 years of the country's offshore oil and gas industry to ensure that the sector, which is a vital contributor to the U.K. economy in terms of tax revenues and jobs, maintains momentum at a time of economic stagnation.

The review will focus on factors such as the licensing regime, optimizing and extending the life of infrastructure, production efficiency, maximizing the use of enhanced oil recovery techniques, increasing exploration and better collaboration across industry. It won't review the tax regime.

"The values involved in U.K. oil and gas are so large that even modest increases in key production metrics over time will deliver significant economic benefits," said Ian Wood, former chief executive and chairman of global energy services group Wood Group PLC, who will lead the review.

The interim conclusions from the review will be published in the Autumn and the final report and recommendations in early 2014.

The review highlights the importance to the U.K. economy of its offshore oil and gas industry, which supports 440,000 jobs and in 2011-2012 paid 11.2 billion pounds ($17.42 billion) in direct taxes, or almost a quarter of all corporation taxes received by the treasury.

Last year's shutdowns at several key oil and gas fields were a major reason for the contraction of economic output in the last quarter of the year, according to the Office for National Statistics.

A raft of recent tax incentives have helped spur record levels of investment in the U.K. continental shelf following years of decline in investment and production. This year investment is expected to reach up to GBP14 billion, an all-time high. That is up from last year's GBP11.4 billion, the highest in more than 30 years.

Production is forecast to rise to 2 million barrels of oil equivalent a day by 2017 from around 1.5 million boe/day expected for this year.

But although investment levels are rising, the U.K. continental shelf, widely known as the North Sea, is one of the most mature basins in the world and faces unprecedented challenges, said U.K. Energy and Climate Change Secretary Ed Davey.

One of the biggest problems is the aging infrastructure: gas has been produced off the coast of the U.K. since the late 1960s and oil since the 1970s. The aging infrastructure has in large part contributed to the decline in production efficiency to 60% from 80% a decade ago, said Malcolm Webb, the head of industry body Oil & Gas UK, along with a more conservative operational approach following BP PLC's 2010 Deepwater Horizon in the US Gulf of Mexico.

Another big challenge is increasing the amount of oil that is extracted from a field, or enhancing the oil recovery. Currently, U.K. oil fields typically yield just under 50%. Depending on geology, technology and the oil price, that figure could go as high as 70%, he added.

"All these issues need to be addressed if we are to stimulate innovation in this sector and see maximum economic benefit for the U.K. in the decades ahead," Mr Davey said.

Oil and gas production from the U.K. continental shelf has been declining since a peak of 4 million boe/day in 1999 to 2000 due to natural decline rates at mature fields, high development costs and a wave of punitive taxes over the past decade, most notably a surprise tax increase in 2011.

Copyright (c) 2012 Dow Jones & Company, Inc.

WHAT DO YOU THINK?

Post a Comment Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
David Richardson | Jun. 11, 2013
All good points and well made but none of this is going to happen without the skilled people to do it. Who is going to employ and train the tens of thousands of people who will run the industry in the future?



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