15th May 2015 10:46
LONDON (Alliance News) - The UK Oil and Gas Authority this week released its initial findings in response to the review commissioned by the government in 2014 concerning the UK oil and gas industry, laying out its plan to rejuvenate the North Sea fields and identifying two "key" risks.
The authority, which was set up by UK government, is attempting to work with various partners from the industry and government to try to maximise production of oil and gas from the UK, especially from the UK Continental Shelf in the North Sea, which is facing reduced investment and higher costs as oil and gas fields age.
In 2014, UK petroleum production fell 2.3% year on year to 43.5 million tonnes of oil equivalent from 44.5 million tonnes in 2013. UK petroleum production has continuously fallen for years, having totalled 69.0 million tonnes in 2010.
The North Sea also has been hit by the substantial fall in oil prices which currently sits at around USD67 per barrel compared to over USD115 per barrel in the middle of 2014.
In its report, the authority said the two "key" risks to the industry is the chance profitability of producing UK fields will be "insufficient" to attract continued investment, which would lead to the premature decommissioning of projects resulting in lost production, and the declining confidence in the potential of the UK Continental Shelf, which would see long-term investment dwindle.
Companies such as FTSE 100-listed oil majors BP PLC and Royal Dutch Shell PLC have already reduced investment and cut jobs in the North Sea, with drilling service company Archer slashing 400 jobs earlier this year alongside press speculation that international firms such as ConocoPhilips are mulling the potential sale of assets in the region.
To try to improve profitability, the authority said the industry must "protect critical infrastructure", improve efficiency, and create a "more competitive and efficient cost base" to ensure the North Sea attracts investment.
To improve the confidence in the North Sea, exploration must be "revitalised", the supply chain needs more support, and there needs to be improved collaboration, it said.
The "key priorities" for the industry, according to the authority, are to force a "cultural shift" so companies can tackle challenges, for the UK government to implement fiscal reform, and for the industry to implement the UK Continental Shelf Maximising Economic Recovery review undertaken by Ian Wood.
The authority said talks with HM Treasury about a fiscal regime which "instils confidence and secures investment" is ongoing. In April, the top 20 production operators presented stewardship improvement plans to the authority.
The previous UK government has already attempted to address issues in the North Sea by pledging four measures that would offer GBP1.3 billion in support to the UK oil and gas industry, primarily in the UK North Sea, which it thinks would lead to production being boosted by 15% before the end of 2020.
Looking ahead, the authority said it would "drive prioritised action and focused delivery, integrating efforts to reduce the overall number of groups and initiatives across the sector" by the end of September 2015.
Before the end of 2015, the authority is aiming to have encouraged the industry to take up a programme for seismic acquisition in unexplored areas of the UK Continental Shelf to boost exploration and complete a "rigorous" economic assessment of key production hubs to identify the drivers of continued investment.
It also wants to facilitate regional development plans for critical regions of the North Sea and improve the quantity and reliability of data and information before the end of the year.
Trade organisation Oil and Gas UK has introduced collaborative measures to try to improve the situation for the UK offshore oil and gas industry to try to increase the life of older fields and improve communication between operators to minimise downtime, working toward the same targets as the authority.
In return, the authority said it expects the industry to establish a single forum to drive innovation and efficiency in decommissioning by September and to improve efficiencies by 30% to 40% by the end of 2017.
"Significant hydrocarbon reserves and economic value remain to be delivered across the UK Continental Shelf. This document sets out a call to action for the tripartite bodies (industry, Authority and government). We must now work together to deliver these actions and commit to the path of maximising economic recovery of the UK Continental Shelf oil and gas," it said in the report.
2014 was an all time low for exploration and appraisal activity in the North Sea, and production revenues were at the lowest in two decades. Over the next three years, the authority said investment is expected to "dramatically fall" with little investment planned at all beyond 2018.
In 2015, there is the potential that only eight to 13 wells will be drilled in the North Sea, of which only five are appraisal wells and costs keep rising. Some GBP9.6 billion was spent operating the UK Continental Shelf in 2014 which was 8% higher than 2013 and in total, around GBP9.5 billion to GBP11.3 billion is expected to be invested in the North Sea in 2015, according to Oil and Gas UK.
By Joshua Warner; [email protected]; @JoshAlliance
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