After more than 30 years, the UK continental shelf remains a world-class petroleum province. Oil and gas production in 2003 exceeded 4 MMboe/d, while investment totaled over £8 billion.
With over 270 oil and gas fields currently active, remaining reserves are estimated to be up to 31 Bbbl, about as much again as has been produced to date. Opportunities for new development exist in the brown fields, in undeveloped discoveries, and from fresh exploration. The North Sea's continued attraction for investors is assured by its extensive offshore infrastructure, its political stability, and its skilled workforce and long-established, highly professional contractor base.
But the North Sea is changing. Advancing maturity is ushering in a new phase in the life of the UK continental shelf. Of the estimated remaining 31 Bboe, development plans are in place for only 14 Bboe. To unlock the full potential of the 17 Bboe "incremental reserves," the industry will have to overcome tough economic, commercial, and technical barriers.
The North Sea's declining production profile is adding to commercial pressures. Production in 2004 is projected to slip to 3.7 MMboe/d and 2.5 MMboe/d by 2010, while unit operating costs are rising and, if left unchecked, will be just under 10% higher in 2004 than forecast a year ago. Development costs are also projected to be 15% higher over the decade compared with a year ago. Clearly, this also needs to be tackled.
To remain globally competitive, the challenge for the UK industry today is to slow down the rate of production decline, raise exploration and appraisal to bring new discoveries onstream, and find new ways of making the development of remaining reserves in brown fields more economically attractive. With many existing fields now approaching the end of their commercial lives, we need to act urgently before the pace of decommissioning picks up and the opportunity to use existing infrastructure to access economically marginal reserves is lost.
This will require a strong team effort involving all stakeholders, and industry and government in particular; neither will be able to achieve success alone. It needs focus to removing perceived or real barriers hindering access to acreage and infrastructure. It requires the sharing of best practice, the implementation of new business models, and the improved application of technology. Effort is also needed to address any fiscal and regulatory burdens that add to industry costs.
Continuing the conversations with government in this area is particularly important to avoid any future shocks to the industry, such as the 10% supplementary corporation tax rate increase introduced for UK offshore oil companies in 2002, which would severely further undermine investor confidence.
Moves to open up access to UKCS acreage are actively supported by the industry, through the work being done in the "fallow process" by Pilot (a joint government/industry forum). This aims to encourage drilling and development activity on blocks and discoveries that have seen no activity for four years or more. Since its launch two years ago, there has been significant renewed activity in 60 of these and over 40 blocks relinquished for re-licensing. Access to subsurface geo-scientific data associated with licenses has also been improved and a National Hydrocarbons Data Archive created, again with strong industry support, while work continues on completing negotiations on an agreed code of practice for fair and reasonable third party access to infrastructure.
The new Frontier License introduced with the 22nd Offshore Licensing Round in March is an example of the innovative approach being taken by the UK government to renew interest in exploration. Targeting specifically the more difficult areas of the Atlantic Margin to the west of Scotland, the Frontier License allows companies to apply for relatively large amounts of acreage at reduced costs. The Promote License launched in the 21st Licensing Round, at similar lower cost to the traditional license, attracted much attention, and 53 of the 89 licenses subsequently awarded were of this type.
Together, these initiatives aim to boost more widespread deal-making in the North Sea and trigger new exploration, asset trading, and investment.
Ukooa, as the trade body representing UK oil and gas producers, is entering a no less interesting phase in its 30-year history. Just as the UK continental shelf is undergoing change, so too is our organization. Our membership is growing, becoming stronger and more diverse as new companies arrive in the North Sea. Led by a newly re-formed Directorate, comprising me, as chief executive, and four policy directors, Ukooa intends to raise its game, to become a more active and inclusive voice speaking on behalf of the full range of companies now operating in the UK continental shelf, and engaging constructively the other stakeholders, including those within industry, government, and the wider community.
We, like the industry we represent, have a challenging future ahead but are equally determined to play our full part in prolonging the economic life of the UK offshore oil and gas sector.
Malcolm Webb
Chief Executive
UK Offshore Operators' Association
This page reflects viewpoints on the political, economic, cultural, technological, and environmental issues that shape the future of the petroleum industry. Offshore Magazine invites you to share your thoughts. Email your Beyond the Horizon manuscript to William Furlow at [email protected].
