It’s exactly three years since I joined the OGA, and alongside the chief executive and team members, we worked with our colleagues in DECC (now part of BEIS) to decide how, against the backdrop of the colossal challenges staring the industry in the face, we could build the Oil and Gas Authority to support industry and make a meaningful difference.
My memory is of the sector being caught between shock at the rapidly declining oil price and a belief, buried somewhere in our collective memory, that “it’ll be OK” and that “this has happened before”.
Certainly, since I joined the industry in the late 90s, I believe there cannot have been a more impactful, difficult or as an important era, as the past three years. The effect on companies, but more importantly the human impact, has been very hard and in many cases, individuals have walked away from this sector – potentially forever.
It quickly became clear this downturn was different, industry leaders’ rhetoric quickly became familiar, phrases such as: “Lower for Longer” which would manage expectations but hinted at a strong return around the corner, were followed by “Lower Forever” which signalled that fundamental change was needed. Many of us felt at this point that what we were experiencing wasn’t part of a predictable cycle, but was instead a crucible moment – where the reality of the situation requires us not to just adjust what we do, but to stop, reflect and fundamentally change.
That’s what people have been doing, some on a small scale with cost saving in departments that allows budgets to go further, some on a larger scale where innovation and technology help unlock opportunities previously considered uneconomic, and others on a grander scale – asking what the future of the industry can look like, and how do we ensure our right to be here for a new future.
This isn’t just theory or buzzword bingo, we have successfully delivered results which the industry can be very proud of. The sector has come together – not always and not perfectly, but better than before and improved average production efficiency to well over 70%, meaning more barrels, longer field life and increased security of supply for the UK. Those barrels, the result of meaningful and often difficult collaboration, can be produced on average at half the cost they were in 2014.
In his review, Sir Ian Wood made it clear that industry must be better supported, and the idea of a “tripartite” relationship between industry, government and a new independent regulator was born.
This tripartite approach is captured in real data for us, we have worked to quantify the impact that collaboration and innovation can have. To date the OGA is confident that we can point to 2.1billion additional barrels of potential resource that have been added through the work of industry, government and the Oil & Gas Authority, with line of sight to significant additional amounts possible through work currently underway on areas such as small pools and technology. The UKCS has between 10 and 20billion barrels of resource left to play for – a huge economic prize.
The OGA is proud to work with industry and government to develop new ways of ensuring assets are in the right hands, that neighbouring fields can be looked at sensibly through “Area Plans” to maximise the economic recovery for the UK, and that we can have a licensing system that works for the good of the UK and those companies that want to explore the basin.
The change in industry performance, and meaningful collaboration are helping to make the UKCS a much more attractive destination for investors to bring capital to. The level of asset sales and transfers in 2017 is one of the biggest in recent memory, with both established and new companies giving the UK industry a vote of confidence through their investment.
Governments have also been in action – with tangible support. The UK Government accepted Sir Ian’s recommendations, authored and passed two major pieces of legislation and created the Oil & Gas Authority at top speed. The Treasury has delivered, in successive budgets, a combination of consistency and stability whilst making bold interventions, including £2.3billion of fiscal measures and changes to decommissioning tax histories announced in November.
The UK Government has supported the OGA in investing in new seismic, then openly sharing that data to revitalise the exploration agenda – working together to make the UKCS the place companies spend more of their exploration funds.
The Scottish Government recently concluded the work of the first minister’s Energy Jobs Task Force. This group brought together public bodies, unions and employers and demonstrated what can be achieved through collaboration and personal commitment. More than 4,000 people were supported through PACE career events, nearly 2,500 received grants for training through the Transition Training Fund, and more than £10million has been awarded to companies for new innovation projects.
Both the UK and Scottish Governments also provided huge support to the North East through the £250million City and Region Deal, bringing investment and innovation – most notably of course through the Oil and Gas Technology Centre.
But what happens next? Well, that’s the task for 2018, and it’s not any easier than the challenges we faced in the last three years. The OGA has worked with industry to author “Vision 2035” which sets out the opportunity for the value of the UKCS and for the UK-based service sector to grow by nearly £300billion between now and 2035. This growth has two elements: the first would be in achieving the additional production (3-4billion barrels); the second element is to see the exports from our service sector to grow from 3.7% of the world market today to 7.4%.
A key vehicle for this next phase will be the Sector Deal for Oil and Gas, which we as an industry have been invited to prepare in response to the UK Government’s Industrial Strategy. This work is underway, and has consulted with hundreds of companies around the sector and in all parts of the UK – not just the North East of Scotland, with involvement of organisations including OGUK, Subsea UK, Decom North Sea, the OGTC and the MER UK Supply Chain & Exports taskforce.
Many sectors are submitting deals, and we must demonstrate real value and that we can continue to change and adapt – including explaining to those outside the sector our vital role in providing energy now and in decades to come as both the UK and Scottish Governments continue to plan for a lower-carbon future.
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