Wood Review Aims to End Squabbles in UK's North Sea

MarineLink.com
Monday, February 24, 2014

By John Kemp. The opinions expressed here are those of the author, a columnist for Reuters.

Britain's North Sea exploration and production business is set to be transformed, with cooperation replacing competition and proactive, intrusive regulation replacing a light touch.

On Monday, ministers promised to back fully the recommendations contained in Ian Wood's review on maximising oil and gas recovery from the UK Continental Shelf (www.woodreview.co.uk).

A powerful new regulator will be spun out of Britain's Department of Energy and Climate Change (DECC), staffed by industry experts with salaries to match, to end the squabbling among offshore operators and promote a strategy based on shared infrastructure and regional development plans.

Government, industry and the regulator will all be officially committed to the goal of maximising economic recovery (MER) of the oil and gas that remains in offshore fields.

And the regulator will be given strong new powers, including compulsory mediation among operators and the power to withdraw exploration and production licences, to ensure that all operators behave in line with this goal.

But the problem is that the Wood review treats symptoms rather than underlying causes.

The issues facing Britain's North Sea oil and gas industry are structural rather than behavioural. Compelling more cooperation may not be enough to stem the region's decline.

Another Shale Victim
The shale revolution has profoundly altered the North Sea's place within the global oil and gas industry.

As a result of fracking, the marginal barrel of oil in the world now comes from an onshore shale play in North America. For the UK North Sea to continue developing, it must be able to compete with oil costing just $80 per barrel.

Britain's remaining North Sea oil and gas fields are mostly marginal, which is why the major oil and gas companies have mostly quit the region.

In a world of $150 oil, even the small UK fields would look like a vital resource. In a world of $100 oil, they start to look much less attractive.

Much of the infrastructure in the North Sea is ageing and will need expensive maintenance and upgrades to remain in a safe condition.

Small operators are already struggling to raise the funding to drill wells and develop fields and may not be able to pay for their share of common infrastructure upgrades.

There is little the new regulator can do about cost pressures, from high salaries to rig-hire rates, which the Wood review identifies as another problem hampering exploration and production.

Awkward Operators
"The fundamental licensing model by which the UK monetises its offshore oil and gas resources is the right one," the report insists, and development "must continue to be led by the operators".

But it cannot hide the coordination problems and mounting frustration as the North Sea oil and gas industry matures and changes.

In the 1970s and 1980s, the UK North Sea was characterised by a small number of giant fields operated by large integrated companies such as BP and Shell.

But in the 1990s and 2000s that has given way to a much larger number of mostly smaller fields and a plethora of independent operators.

Some are behaving in ways that are detrimental to maximising oil and gas recovery, according to the review, and must be given new incentives to force them to cooperate for the benefit of the industry and the country as a whole.

The Wood review complains: "The UK Continental Shelf is perceived as being one of the most difficult and adversarial legal and commercial basins in the world, disproportionately driven by risk aversion to the detriment of value creation.

"Whilst acknowledging there are genuine technical difficulties that can impact negotiations, the frequency of failure to agree between and within consortia on key issues, including access to infrastructure and development of field clusters, is very damaging," it adds.

There are a number of companies that refuse to collaborate, and "operators have brought many of the problems on themselves", the review warns.

"Industry must challenge this culture, and senior management must play a leading role in delivering change."

In case exhortation is not enough, however, the review wants a powerful new regulator to settle the disputes and enforce cooperation - if necessary by removing licenses from operators who refuse to play together nicely.

It promises the new regulator, "will play a vital role in facilitating, coordinating, mediating, promoting and catalysing collaboration, removing barriers and encouraging more efficient exploration, development and production", while being "low in bureaucracy, high in skills and experience, and strong and pragmatic".

Pwerful New Agency
DECC has just 50 specialist staff working on oil and gas licensing, exploration and development issues out of a total payroll of 1,600.

Its specialist oil and gas staff has almost halved since the 1990s, when there were far fewer fields in production, and compares with over 200 in Norway's Petroleum Directorate and 70 at the Netherlands regulator.

Within the department, the oil and gas team must compete for scarce resources and ministerial attention with much larger groups working on climate change, utility bills and investment in new power stations.

A new specialist regulator, reporting to the department but established outside it, would create a much stronger focus for oil and gas regulation.

By recommending that it have a strong chief executive and a specialist staff of geologists, engineers and commercial personnel recruited from industry, the review aims to make the regulator a key interlocutor between and principal adviser to Britain's finance ministry, DECC and offshore oil and gas operators.

Creating a new agency, rather than simply adding extra personnel within DECC, will send a "clear signal" that the government expects a "step change" in the management of offshore oil and gas resources and that this is not just a rebadging exercise.

The review wants the new agency to have the confidence and the expertise to intervene more intrusively and aggressively.

The terms of existing exploration and production licences already allow DECC to intervene but are often not used by a regulator that prefers to employ a "light touch".

The review also suggests the regulator should sponsor some speculative seismic surveys and should consider more favourable tax treatment for exploration, such as in Norway, where there have been large finds recently.

The review does not say so explicitly, but a powerful new regulator also would be in a much stronger position to lobby finance ministers to support future investment by granting extra tax breaks.

Creating a powerful agency to lobby the treasury for more tax relief could be the review's most important legacy.

Stranded Oil Resources
The UK North Sea has already yielded 42 billion barrels of oil and gas and could yield another 12-24 billion more, according to Wood.

But production has been falling since 1999, and the rate of decline has accelerated recently. New fields are mostly high-cost, small and marginal economically.

Nearly all fields now in production produce less than 15,000 barrels per day. In the last two years, just 150 million barrels of new oil and gas have been discovered. "There has not been a significant (multi-hundred million) discovery for five years," the review warns.

The review worries that much of the remaining oil and gas may be left behind unless the decommissioning of existing pipelines and platforms can be delayed and operators can be cajoled or compelled into working together to exploit adjacent fields by cooperating on joint pipelines and projects such as enhanced oil recovery (EOR).

EOR projects, like hydraulic fracturing or carbon capture and storage, could help extract billions of extra barrels of oil from old and geologically difficult fields. But they are expensive, and in fields that are already marginal they may not be competitive.

But there may be limits to what even a dynamic new regulator, armed with strong powers of persuasion and compulsion, can achieve against the structural changes that are sweeping the global oil and gas market.

The Wood review makes a useful contribution, but the new regulator may struggle to make much difference to an industry that is being gradually undermined by the superior economics of shale.

(Editing by Jane Baird)

Maritime Reporter August 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

NY Harbor Supply & Distribution Fall Reception/Buffet

More than 600 attendees are expected at the 52nd annual New York Harbor Supply & Distribution Fall Reception/Buffet for the energy and energy related industries

Kounalakis Joins OW Bunker N. America

OW Bunker, a reseller and physical supplier of marine fuels, announced the appointment of Georgia Kounalakis to its physical supply operation in North America.

HII Appoints Brenton as Corporate Director

Huntington Ingalls Industries (HII) announced today that Capt. Kevin Brenton (U.S. Navy, Ret.) has joined the company as corporate director of customer affairs for submarine programs.

Offshore

Norvestor to Become PG’s Largest Shareholder

Norvestor VI, L.P., a fund advised by Norvestor Equity AS, announced it has signed an agreement to invest in Ing Per Gjerdrum AS including its subsidiaries PG Hydraulics AS and PG Construction AS.

Crowley Receives Heavy-Lift Deck Barge in Singapore

Crowley Maritime Corporation’s solutions group announced today that it has received the first two of potentially four, new heavy-lift, ballastable deck barges (HDBs)

Signet Transports Second LLOG Rig to GofM

On September 14, five Signet Maritime ASD/Z-Drive tugboats, the SIGNET ENTERPRISE, SIGNET RELIANCE, SIGNET MAGIC, SIGNET WEATHERLY, and SIGNET VOLUNTEER successfully

Finance

Norvestor to Become PG’s Largest Shareholder

Norvestor VI, L.P., a fund advised by Norvestor Equity AS, announced it has signed an agreement to invest in Ing Per Gjerdrum AS including its subsidiaries PG Hydraulics AS and PG Construction AS.

GasLog Closes First Option Vessels Dropdown

GasLog Ltd.  announced today the closing of the sale of two modern liquefied natural gas (“LNG”) carriers, the Methane Jane Elizabeth and Methane Rita Andrea,

Brent Holds Above $97, Eyes Worst Quarter Since 2012

Brent crude futures hovered above $97 a barrel on Tuesday, aided by firm U.S. and Chinese data, but the oil benchmark was on track for its deepest quarterly drop

Energy

Louisiana to Get Natural Gas Liquefaction and Fueling Facility

Tenaska Bayou LNG expected to meet growing marine, transportation and oil and gas exploration and production demand on the Gulf Coast Tenaska NG Fuels, LLC and Waller Marine, Inc.

ABB WinsTunisia's Gas Treatment Plant Bid

ABB, the leading power and automation technology group, has been awarded a $216 million contract to deliver a gas treatment plant to the South Tunisian Gas Project (STGP).

GasLog Closes First Option Vessels Dropdown

GasLog Ltd.  announced today the closing of the sale of two modern liquefied natural gas (“LNG”) carriers, the Methane Jane Elizabeth and Methane Rita Andrea,

News

NY Harbor Supply & Distribution Fall Reception/Buffet

More than 600 attendees are expected at the 52nd annual New York Harbor Supply & Distribution Fall Reception/Buffet for the energy and energy related industries

Kounalakis Joins OW Bunker N. America

OW Bunker, a reseller and physical supplier of marine fuels, announced the appointment of Georgia Kounalakis to its physical supply operation in North America.

Louisiana to Get Natural Gas Liquefaction and Fueling Facility

Tenaska Bayou LNG expected to meet growing marine, transportation and oil and gas exploration and production demand on the Gulf Coast Tenaska NG Fuels, LLC and Waller Marine, Inc.

Government Update

Cove Point LNG Export Facility Gets US FERC Approval

U.S. federal regulators on Monday approved construction of Dominion Resources Inc's liquefied natural gas export project in Cove Point, Maryland. Cove Point is the fourth U.

Port Firm Fined £650,000 for Health, Safety Breach

A port operator has today (Monday 29 September) pleaded guilty to health and safety breaches, following the deaths of three crew members of a tug which capsized on the River Clyde in 2007.

IRPT, Community College MoA on Maritime Training

The Inland Rivers, Ports and Terminals (IRPT) Trade Association announced today that it has entered into a memorandum of understanding with Lewis & Clark Community

Offshore Energy

N-Sea Completes Inaugural System Diving Scope

Inspection, maintenance and repair (IMR) specialist N-Sea has recently completed its inaugural diving scope with the TUP Diving System (Transfer Under Pressure).

Norvestor to Become PG’s Largest Shareholder

Norvestor VI, L.P., a fund advised by Norvestor Equity AS, announced it has signed an agreement to invest in Ing Per Gjerdrum AS including its subsidiaries PG Hydraulics AS and PG Construction AS.

Signet Transports Second LLOG Rig to GofM

On September 14, five Signet Maritime ASD/Z-Drive tugboats, the SIGNET ENTERPRISE, SIGNET RELIANCE, SIGNET MAGIC, SIGNET WEATHERLY, and SIGNET VOLUNTEER successfully

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Security Navigation Offshore Oil Pipelines Pod Propulsion Port Authority Salvage Sonar
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2437 sec (4 req/sec)