The UK Continental Shelf (UKCS) has an impressive four decades and 37billion barrels of oil and gas production under its belt, but as Oil & Gas UK frequently points out, there are still up to 25billion barrels remaining to be extracted.
Over the years, the valuable experience gained in this maturing oil and gas basin means that the UK now has access to world-class people and technology and extensive infrastructure for bringing oil and gas ashore.
So provided we have a more competitive tax regime which reflects the fundamentals of a mature oil and gas basin, the scene should be set for the successful recovery of the UK’s remaining oil and gas reserves, shouldn’t it? Not quite.
The opportunities on offer on the UKCS, ranging from exploration to production, to decommissioning, are very different from those of the past 40 years. The basin needs a diverse range of companies with different business perspectives and new ideas to complement the significant investment already being made. It is vital that we attract additional investment from companies with renewed enthusiasm to tackle the challenges a mature basin presents. So what is being done to smooth the way for these companies to enter the UKCS?
For starters, industry and Government have agreed to work together through the Changing Gear initiative to improve engagement and compliance with Codes of Practice, which are sets of guidelines with a focus on streamlining processes and creating value.
Industry compliance with the codes will help the transition to a culture of faster and more efficient ways of doing business as the diversity of players in the basin evolves and increasingly smaller operating companies arrive.
Common Data Access (CDA), a subsidiary of Oil & Gas UK, has also made real progress in oiling the wheels of entry into the UKCS. CDA provides public access to a directory of well, seismic and other data on its DEAL website, a tool which has become an integral part of many companies’ routine business.
CDA also collates, maintains and facilitates the sharing of data from the thousands of wells already drilled on the UKCS in its Well DataStore. This helps the oil and gas industry, in particular those new companies with different business perspectives, to avoid duplicating work and hence reduce the cost of exploring for new oil and gas reserves.
What’s more, this year, the principle of improving the efficiency of exploration on the UKCS through sharing of well data will now be applied to seismic data.
Oil & Gas UK’s breakfast briefing in Aberdeen is being held on May 13 to explore how the industry is working to improve the operating landscape and entice new entrants into the basin. Delegates will also hear how those companies are grasping the exciting opportunities on offer and what more can be done to continue attracting this range of new faces to the UKCS.
Another aspect of the UK oil and gas industry’s future which, given its implications for new entrants, must be addressed today is the arrangements for the eventual decommissioning of oil and gas assets.
If we are to maximise the recovery of the UK’s oil and gas reserves, assets must be in the hands of those companies which see most value in them. and the trading of assets facilitates this.
Uncertainty around the treatment of decommissioning costs and liabilities not only creates an unstable backdrop against which to invest, materially reducing the attractiveness of the UK as a place to plan for future growth, but also holds up the transfer of assets.
Oil & Gas UK therefore leads the industry in working with Government to find solutions in this area and is holding another breakfast briefing, this time in London on May 21, exploring the impact of decommissioning liabilities on asset trading on the UKCS.
One dynamic that has proved a barrier to asset trading is the time and cost of putting in place security arrangements to cover decommissioning costs. In response, a new standard agreement or “deed” was launched in 2007 to speed up this process, reduce duplication of securities arrangements and help boost asset trading.
There is also uncertainty around the future fiscal treatment of decommissioning costs and the definition of parties that could be made liable for them. We are currently in discussion with the Government on these issues with a view to achieving the clarity needed for companies to make rational and long-term investment decisions.
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Malcolm Webb is CEO of Oil & Gas UK