Wood review outlines steps to safeguard UK’s oil and gas future

Feb. 26, 2014
Sir Ian Wood has outlined his strategy for Maximizing the Economic Recovery from the UK continental shelf (MER UK).

Offshore staff

LONDONSir Ian Wood has outlined his strategy for Maximizing the Economic Recovery from the UK continental shelf (MER UK).

This report was commissioned by Edward Davey MP, Secretary of State for Energy and Climate Change.

Sir Ian said: “I see this as a watershed opportunity to ultimately reshape the regulatory environment, extend the life of the UKCS and bring at least £200 billion [$334 billion] additional value to the economy over the next 30 years. We need to step up our game to maximize the recovery of our hydrocarbon reserves and attract more investment.

“My interim report highlighted the challenges now facing the UKCS: the number of fields has increased to over 300; new discoveries are much smaller; many fields are marginal and very interdependent; and there is strong competition for ageing infrastructure. In short, the UKCS is now a patchwork of interconnected and interdependent operations. There is also growing competition from many international offshore regions.

“At the same time, the present regulatory function in the Department of Energy and Climate Change (DECC) has halved in size over the last 20 years and now lacks the broader capability and resources to perform the much more demanding stewardship role that is required.”

In November, theinterim report issued four main recommendations for consultation:  

1. Government (HM Treasury and the new Regulator) and Industry to collaborate to unlock and maximize UK offshore resources. The final report sets out the key principles of MER UK and the role each party will be required to play.

2. The creation of a new arm's length regulatory body in charge of effective stewardship and regulation ofUKCS hydrocarbons, with broader skills and capabilities, striving to remove barriers to encourage more efficient recovery of UKCS hydrocarbons.  

3. The new regulatory body to be given additional powers to facilitate implementation of MER UK and to encourage and influence collaboration in industry.

4. The regulator, working with industry, should develop and implement strategies to under-pin delivery of MER UK.

Sir Ian said: “The proposals and limited new powers are much more about stronger and better stewardship, establishing standards and procedures for collaboration and dispute resolution, as opposed to more regulation. I am clear that the development of the UKCS must continue to be led by the operators, who provide the significant investment of funds, expertise, and experience.

“The new regulator's role will be licensing, supervision, and stewardship. It must be low in bureaucracy, high in skills and experience, and strong and pragmatic…

“Recovering more oil and gas resources from the UKCS, and ensuring a fair return to investors for their commercial risk, will attract more players and investment, and will be to the benefit of all parties.”

He added: “I am delighted that government is accepting all the principal recommendations in the report and is moving ahead on a fasttrack basis. I believe this is essential. Ultimately, this will place the UKCS in a much stronger position to recover more of the 24 Bboe that is the maximum still to be recovered.”

The Secretary of State has asked Sir Ian to chair an Interim Advisory Panel which will advise DECC on various policy, technical, and operational issues in setting up the new regulator.

The final report recommends six central strategies to achieve MER UK.

Revitalizing exploration via efficient access to well and seismic data, an appropriate licensing regime, and encouraging data-sharing within regional offshore development plans. Measures should also be taken to promote internationally UK exploration opportunities.

Ensuring operators are held to account for proper stewardship of their offshore assets and infrastructure to maximize economic recovery from fields in their licenses and adjacent resources. They should also share their stewardship strategy with the regulator, with the latter setting out clear expectations on production and recovery efficiency.

Development of UKCS resources on a regional rather than a sole-field basis. Operators must co-operate with the regulator and other license holders in the area on all aspects of field and cluster development, from exploration through to decommissioning, in order to maximize recovery. Operators should also make their infrastructure and process facilities available where possible to third parties, at fair and economic commercial terms.

Existing infrastructure to be prolonged to facilitate processing, transport, and export of the UK’s offshore resources, along with investment in new infrastructure. This strategy is to be developed on a regional basis.

Existing technologies to be deployed to full effect and new ones developed to maximize recovery. The UK should focus on five critical technology areas to build on its position as a global center for exploitation of offshore hydrocarbons.

Maximum economic extension of field life, ensuring assets are not decommissioned prematurely to the detriment of production hubs and infrastructure.

These strategies, Sir Ian claimed, will help operators avoid unnecessary costs, delays, and technical, legal and commercial complexity in their dealings with each other and with the regulator.