Government plans review of North Sea oil industry

It will be the biggest independent review of the North Sea's oil and gas industry in its history. Picture: ComplimentaryIt will be the biggest independent review of the North Sea's oil and gas industry in its history. Picture: Complimentary
It will be the biggest independent review of the North Sea's oil and gas industry in its history. Picture: Complimentary
THE UK government has announced the biggest independent review of the North Sea oil and gas industry in its history, in a bid to unlock the potential of Britain’s remaining offshore reserves.

The benchmark study is to be headed by Sir Ian Wood, the former head of the Aberdeen-based global energy giant the Wood Group.

His review team has been charged with producing recommendations to maximise production and exploration in the UK Continental Shelf (UKCS) to boost energy security, jobs and tax revenue.

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Industry leaders welcomed the review and believe ways can be found to increase daily North Sea production from its current 1.5 million barrels of oil per day to two million barrels.

Sir Ian and his team have been given six months to look at improving the licensing regime, extending the life of the North Sea infrastructure, encouraging greater collaboration between oil companies and developing new sub-sea technologies.

The review team, however, will not be making any recommendations about changes to the taxation and the fiscal regime for North Sea oil and gas.

Unveiling the review, Energy Secretary Ed Davey said: “Although investment levels are rising strongly, the UKCS is one of the most mature basins in the world and therefore faces unprecedented challenges.

“Our offshore infrastructure is getting older, and we are seeing a decline in the rate of exploration and in the amount of oil and gas that is being recovered. All these issues need to be addressed if we are to stimulate innovation in this sector and see maximum economic benefit for the UK in the decades ahead.”

Oil and gas has a key role in the debate ahead of next year’s independence referendum. The SNP claims North Sea revenues – worth about £10.6 billion in 2011-12 – would leave Scotland’s public finances in better shape than those of the rest of the UK.

The vast bulk of remaining oil and gas reserves – an estimated 85 per cent– lie in Scottish waters. However, although the industry will be a critical part of Scotland’s economy for years to come, recent claims by Scottish energy minister Fergus Ewing that reserves could last until the end of the century were met with surprise.

Experts such as Professor Alex Kemp, of Aberdeen University, said current predictions for oil and gas production in the North Sea only last until 2050, but by then would be “quite small”.

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Mr Ewing said yesterday: “Oil and gas is the largest industrial sector in Scotland, it supports employment for around 200,000 people across Scotland and it accounted for more than a quarter of the UK government’s corporation tax receipts in 2011-12.

“Oil and gas will remain an enormous economic resource for decades to come, with the remaining oil and gas reserves having a potential wholesale value of up to £1.5 trillion.

“This implies that, by value, more than half of the oil and gas reserves in the North Sea could yet be extracted.”

Sir Ian, one of the most respected figures in the industry, said his team would focus on the key areas that would make the most significant difference.

He said: “Even modest increases in key production metrics can produce a huge amount of value and a lot of jobs.

“The review will focus on the licensing regime to ensure the system is consistent with increasing the exploration effort and it will focus on optimising and extending the life of the infrastructure.

“Production efficiency has fallen badly in the last four or five years and production itself is down significantly in the last couple of years, so clearly that is an area of focus. And I suspect there is potential for a lot more collaborations across the industry, both in terms of new field and brownfield developments.”

He said the review would also look at the “structure, scale and effectiveness of the government’s stewardship regime”.