Chapter 1- Historical Overview

1.1 This chapter describes some of the ways the Department of Trade and Industry (DTI) discharges its regulatory and sponsorship responsibilities for the oil and gas industry.

1.2 Information on the DTI’s Oil and Gas (OG) Directorate and the Infrastructure and Energy Projects (IEP) Directorate (incorporating OSO [Oil, gas and petrochemicals Supplies Office] with PEP [Project Exports Promotions Directorate]) is contained at sections 1.23 to 1.28 below.

1.3 The Petroleum (Production) Act 1934 gives the UK Government the right to grant licences to explore for and exploit the petroleum resources of Great Britain and its territorial waters. The Continental Shelf Act 1964 extends these rights to the UK Continental Shelf (UKCS). Regulations made under the 1934 Act set out how and by whom applications for these licences can be made. The DTI has published a new booklet to help create a better understanding of the UK hydrocarbons licensing regime. Copies of this booklet can be obtained by contacting the DTI on telephone number 0171 215 5136. More information on the UK Petroleum Licensing Framework can be found in Chapter 3.

1.4 Under the terms of the Licences all data is held as confidential for a period of 5 years from the time the Secretary of State for Trade and Industry receives it. Historically only well data has been released under a discretionary rolling programme, this has resulted in a series of non-exclusive contracts. Some specific seismic data sets are also available although no rolling programme of release has been in place. An initiative is under way to bring about the routine release of offshore seismic data. The UK Onshore Geophysical Library manages the release of onshore seismic data.

1.5 This subject is covered in greater detail on the DTI Oil and Gas web site (see section 1.29 below). Various well data sets and analysis, and seismic data sets, are available from the companies listed in Table 1.1 below.

1.6 Any company that would like to suggest further data sets or analyses to release on a non-exclusive value added basis should contact the DTI on telephone 0171 215 5133.

1.7 CDA has been established to provide a radical solution to hydrocarbon data management in the UK oil industry. A company, CDA Ltd, has been formed by 33 oil companies to manage the initiative. The DTI fully supports the Company’s objective of offering a quality-controlled data service to the industry through centrally administered entitlements catalogues integrated with distributed data stores. It complements the National Geoscience information service of the British Geological Survey. The first phase of the project, launched in March 1996, related to digital well log data. Further phases of the project are planned to look at hard copy well data, seismic data and final well data.

1.8 Protection of the environment is a key priority in the exploration, development and production of the United Kingdom’s oil and gas resources. Applicants for Production Licences are expected to submit copies of their Company Environmental Policy, Environmental Management System and an initial Environmental Assessment of the areas to be explored with their applications. They are also expected to demonstrate that environmental considerations have been taken into account in their work programmes. Once development has started regular inspections, including unannounced monitoring overflights, are conducted to ensure strict compliance with the agreed environmental constraints. More information on Environmental Safeguards can be found in Chapter 4.

1.9 Regulations to implement the EU Environmental Impact Assessment Directive (85/337/EEC) as it applies to offshore oil and gas activities on the UK continental shelf are expected to come into effect in April 1998. The UK has until March 1999 to introduce the amendments made to the 1985 Directive by Directive 97/11/EU. These regulations add a further legislative strand to the UK’s objective of ensuring that oil and gas exploration and development take place with minimal effect on the marine environment.

More information on environmental assessment requirements can be found in Chapter 4.

1.10 The Petroleum and Submarines Pipelines Act 1975 (as amended) prohibits the construction and use of pipelines on the UKCS without the written consent of the Secretary of State for the Department of Trade and Industry. It describes the procedure to be followed by the Operator and the Secretary of State for Trade and Industry before an authorisation can be granted. In addition to these legislative controls over pipelines, the industry has adopted a voluntary Offshore Infrastructure Code of Practice.

1.11 The DTI Core Store, located in Edinburgh, is the repository for core and cutting samples taken from wells drilled on the UKCS. The Store contains some 380 km of well cores and nearly 2 million cutting samples as well as an extensive collection of well records on microfiche.

1.12 Licensees are obliged to keep core and cutting samples under the terms of their licences and of the Petroleum Operation Notices (PONs). They must also provide a portion of all such samples to the DTI. These are received, curated and administered at the Core Store by contractors.

1.13 The Store offers facilities to anyone to view and examine the samples in a spacious, well-equipped environment. The facilities have been used by oil companies, contractors and academics to run core training workshops for geoscientists in the industry. For further information, telephone the Core Store on 0131 664 7330.

1.14 The Infrastructure and Energy Projects Directorate (IEP) supports the industry led CRINE NETWORK. This supersedes the highly successful CRINE (Cost Reduction Initiative for the New Era), which has cut more than 30% from oil and gas project costs by improving competitiveness while not compromising safety or environmental standards. CRINE NETWORK is committed to creating, by the year 2000, a UK industry competitive anywhere in the world.

1.15 The DTI’s expenditure in 1997/98 on the Hydrocarbons Additional Recovery Programme (HARP) was £3.1 million. This programme, which supersedes the Improved Oil Recovery and Reservoir Simulation programmes, aims to provide the DTI with the technical support which it requires to fulfil its regulatory function of ensuring maximum recovery of economic oil and gas from UK fields and to foster and sponsor innovative recovery techniques.

1.16 Dissemination events, including a number of workshops and publishing of generic studies undertaken by AEA Technology, were carried out during 1997. Further studies and research on improved oil recovery topics were carried out at Winfrith and new Joint Industry Projects concerned with chemical sensor development, uniwell seismic, upscaling and pore-scale modelling were sponsored.

1.17 DTI’s expenditure in 1997/98 on the Offshore Geology programme was £1.28 million. This programme covers the provision of independent analyses of hydrocarbon prospectivity on the UKCS, the receipt and curation of cores and cuttings from hydrocarbon wells, and the management of the DTI Core Store.

1.18 The advice on hydrocarbon prospectivity on the UKCS is carried out by a small team of geoscientists from the British Geological Survey (BGS) dedicated exclusively to the DTI. Their work forms the basis of the estimates of the Undiscovered Recoverable Reserves potential published in Chapter 6 of this report.

1.19 The DTI sponsored a conference to highlight best practice in the development and production of hydrocarbons in the North Sea, at the Queen Elizabeth II Conference Centre on Friday 21 November 1997.

1.20 At the conference, which was a considerable success, John Battle made awards to two companies for their significant contributions to maximising economic recovery of the nation’s resources.

1.21 The first award, for innovative drilling achievement went to Mobil North Sea for the first multi-fracced horizontal well on the UKCS in the Mordred field. By hydraulically fracturing several zones in very low permeability rock Mobil have been able to achieve the commercial development of the Mordred gas field which they would not have been able to do otherwise. This multi-fraccing of a horizontal well potentially opens the door to the development of other very low permeability fields on the UKCS.

1.22 The second award went to Oryx for their management of late-life production in the Murchison field. The award is for investing in the field for incremental recovery, drilling infill wells, cost-effective workovers and for developing areas previously considered uneconomic.

1.23 The OG Directorate of the DTI is responsible for maximising the economic benefits to the United Kingdom from the exploitation of the nation’s hydrocarbon resources, having due regard to the potential impact of such activities on the environment and on other land and sea users.

1.24 The Directorate operates at three sites: Offices in London and Aberdeen and the Core Store in Edinburgh. It’s objectives are:

To encourage expeditious, thorough and efficient exploration to identify the oil and gas resources of the United Kingdom and to maximise the benefits to the nation from their exploitation, having due regard to the environment and the interests of other land and sea users.

To ensure the maximum economic development and production of discovered reserves from fields; an efficient consents system for fields; and an effective decommissioning policy in the national interest;

To collect the Royalties and Gas Levy due to the Secretary of State for Trade and Industry efficiently, objectively and economically;

To maintain an informed understanding of the industries and their international markets; sponsor the industries in the UK and EU policy formulation, and to help reinforce the UK’s strengths as a base for pursuing oil and gas opportunities world-wide;

1.25 In the early 1970’s it appeared that UK industry would be unable to supply the greater part of the equipment and services needed to support the rapid expansion of oil and gas production on the UKCS. However, following the creation of the Offshore Supplies Office (OSO) as the arm of Government sponsoring the sector in 1973, UK industry steadily improved its share of UKCS orders and throughout the 1980s and early 1990s consistently supplied over 70% of that market.

1.26 In 1994 OSO’s remit was expanded to assist UK companies in export markets including the downstream oil and gas and petrochemical sectors. In November 1997 OSO merged with another DTI Directorate (that promoting infrastructure exports) to form the Infrastructure and Energy Projects Directorate (IEP). The acronym ‘OSO’ is still retained, particularly in relation to oil, gas and petrochemicals supply chain exports, where the principal task is to help UK suppliers maximise their share of the estimated £200 billion spent each year world-wide.

1.27 To achieve this, it first works to ensure that the UK is a preferred location for investment by the oil and gas supply chain and for overseas and domestic customers to buy oil/gas related goods and services. Specifically to promote exports, three distinct groups work with overseas posts and DTI Market Directorates, identifying opportunities and co-ordinating effort to maximise UK involvement in these markets. These are the Upstream Export Promotion group; the LNG and Petrochemicals group - looking at downstream projects and working particularly with contractors; and the Target Market group - which brings to bear additional intensive effort on only a few selected upstream and downstream markets at any given time. A Business Support team provides advice to colleagues and clients on UK technical and commercial capability. and acts as the organisation’s interface with other Government Departments, Business Links and Regional Organisations.

1.28 Through these teams Government assists UK suppliers by: working to help UK companies improve their competitiveness; helping buyers identify competitive suppliers; providing information to suppliers on current and future market opportunities; advising on help available from DTI and other arms of government; supporting research and development of key technologies and helping companies take part in promotional events such as Ministerial visits, missions, exhibitions and conferences.

1.29 Information produced by the DTI aimed at the Oil and Gas industry has been available on the World Wide Web since December 1995. For anyone who has access to a web browser, the information can be found at the following addresses:

Support for the UK oil, gas and petro-chemicals supply chain and contact details.

1.30 DTI are investigating whether the web is a suitable mechanism for making public domain data available. Currently the official UK list of wells and some basic well header are available.

1.31 It is currently proposed that a digital version of the Brown Book will be made available later this year. For further information contact the DTI on telephone 0171 215 5153.

Box 1.1 ORIGINS OF OIL AND GAS

Oil and gas are the most important natural resources to be discovered in the UK this century. They provide energy and essential chemicals for the home, industry, and the transport system as well as earning valuable export and tax revenues to support the UK economy.

The UK’s offshore oil and gas originate from two sources. Firstly, gas from beneath the southern North Sea and the Irish Sea derived from coals which were formed from the lush, tropical rain forests that grew in the Carboniferous period about 300 million years ago. Secondly, oil and most gas under the central and northern North Sea derived from the remains of planktonic algae and bacteria that flourished in tropical seas in the Jurassic period, about 150 million years ago.

For centuries small quantities of oil have been produced in Britain. The oil originally came from shales, which early pioneers excavated near Edinburgh and roasted to produce kerosene, known as "lamp oil". Production peaked in 1913 at more than 3.25 million tonnes. During the First World War, when the importation of oil became more difficult, the Government first began to consider the idea of encouraging companies to drill for oil. The Petroleum (Production) Act 1918 conferred on the Crown the right to control exploration and production in the UK and to grant licences for that purpose. The war ended soon after the Act was passed and, with the resumption of cheap and readily available imports, it was not until early 1930’s that interest in exploration began growing again.

During that time, a more systematic and concentrated exploration effort was initiated ranging from southern counties with prospects considered similar to the Paris Basin, to the Midlands, North of England and Scottish Lowlands. The Petroleum (Production) Act 1934, which repealed the 1918 Act, reaffirmed the Crown’s ownership and set out the framework to allow production. The first successes came in 1937 when an onshore gas field was found in Yorkshire, soon followed by a small oil field near Nottingham. By the 1940’s 40,000 tonnes of oil were being produced per year.

Onshore exploration was greatly advanced with the discovery of the Wytch Farm field in Dorset in 1973, and its later offshore extension, which was proven in the 1980’s. The field is the largest onshore oil find to date in Western Europe.

Information on the exploration of the UKCS can be found in Chapter 5.