1 Government/Industry Activity
1.1 1999 was another record year for production of both oil and gas on the UKCS. However, it was not an easy year for oil and gas producers, with world oil prices remaining below $20 a barrel until August and investment consequently under pressure, leading to uncertainty for the contracting and supply sectors. The Government and the industry worked together in the Oil and Gas Industry Task Force to counter this difficult trading environment. In this joint work, and in its other petroleum policies, the Government’s objective was to increase the competitiveness of the UKCS, e.g. by encouraging and facilitating:
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suitable new entrants to the UKCS to enhance competition and innovation |
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asset trading between licensees to maximise development efficiency |
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cost reduction through new approaches to exploration and development |
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modernising the licensing regime |
1.2 In reviewing and modifying its own regulatory performance the DTI has looked critically at all aspects of UKCS approvals and data collection, and in particular sought to introduce electronic commerce to speed up processes. It has removed burdens and obstacles where at all possible. At the same time, it has taken care to clarify licensees’ obligations, for example in relation to decommissioning costs, and to maintain important standards of environmental impact assessment.
OIL AND GAS INDUSTRY TASK FORCE (OGITF) AND PILOT
1.3 The Oil and Gas Industry Task Force (OGITF) was a significant new initiative established by the Secretary of State for Trade and Industry at the end of 1998. Its remit was to recommend ways in which the UK Oil and Gas Industry could maintain its competitiveness in the face of increasing maturity and low oil prices. Representatives from the operators, the supply chain and the trade unions were invited onto the Task Force alongside representatives from the DTI, DETR, Scottish Office and Treasury. Chaired initially by John Battle, Minister for Energy and Industry, and latterly by Helen Liddell, Minister for Energy and Competitiveness in Europe, the OGITF met nine times.
1.4 It was decided early on that the Task Force needed to look widely at all aspects of the industry. Seven Workgroups (Vision, Competitiveness, Fiscal, Regulation & Licensing, Skills & Training, Innovation & Technology, and Sustainable Development) were established with wide-ranging membership from across the industry. Each of these workgroups was co-sponsored by a Government member and an industry member.
1.5 The OGITF Report "A Template for Change," containing the results of the OGITF work, was launched by Stephen Byers, the Secretary of State for Trade and Industry, at the Offshore Europe Conference in Aberdeen in September 1999. The report recognised the real opportunities which remain for those companies looking to invest in the North Sea and identified the following ambitious yet achievable vision for the UKCS in 2010:
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investment in UKCS activity sustained at £3 billion per annum |
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UK share of world supplies market increased by at least 50%, an increase of £2 billion, over the next 5 years |
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£1 billion additional value from new businesses |
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supporting up to 100,000 jobs more than there would otherwise have been production at 3 million barrels of oil equivalent per day |
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prolonged self sufficiency in oil and gas |
1.6
The job of turning this vision into reality now rests in the hands of PILOT, the
second phase of the OGITF. Its key aim is to see that action is taken on the
recommendations and initiatives of the OGITF whilst ensuring that the industry
has the opportunity to address any future issues.
1.7 Initiatives established by the OGITF include:
LOGIC (Leading Oil & Gas Industry Competitiveness)
1.8 This initiative, launched at Offshore Europe in September 1999, is a central resource for developing and disseminating Supply Chain methodologies. DTI and 5 leading oil and gas advantages to the industry could be gained as it is estimated that better Supply Chain Management could contribute to savings on the UKCS of £1 billion by 2002.
ITF (Industry Technology Facilitator)
1.9 Also launched at Offshore Europe, the ITF’s aim is to encourage collaboration between suppliers and end users to ensure identified needs can be met. Essentially this is about dialogue creating better understanding and confidence. ITF will encourage collaboration between technology users to ensure that the risks and benefits of applying new technologies are shared. Research, field trials and development of products that fit the fundamental requirements for the UK oil and gas industry will be promoted through joint industry projects.
LIFT (Licence Information for Trading)
1.10 LIFT is a highly innovative approach to encourage companies to fully utilise assets or offer them to others better placed to optimise such licensed acreage. LIFT brings together a collection of informative web pages on the Internet where companies interested in licence trading and active portfolio management can promote assets for sale, trade or farm-in opportunities and review advertised assets for potential acquisition. UKOOA (on behalf of the OGITF) awarded the contract to develop the web-site to Schlumberger GeoQuest. The web-site http://www.uklift.co.uk went live on 1 November 1999.
DEAL (Digital Energy Atlas & Library)
1.11 This is another web-based initiative that will provide an index and directory of available technical information and data on the UKCS through a graphical user interface in the form of an interactive map. It will be an on-line data index of data (e.g. well, seismic, regional reports & production data) and will indicate what is available and where it can be obtained. DEAL will potentially offer significant time and costs savings for routine data handling. The launch is anticipated for the end of July 2000. The development web-site can be found at http://www.ukdeal.co.uk.
NTO (National Training Organisation)
1.12 The OGITF recognised a strong need to enhance the training and skills base in the oil and gas industry. The NTO will ensure a pan-industry approach to training, bringing together all the oil and gas training organisations, graduates and trainees, to the benefit of the whole of the oil and gas industry. It entails the identification and forecasting of future skills requirements and encourages an increased commitment to training and a better utilisation of existing funding. There will be a real focus on the new skills required for the future, by anticipating new ways of working, encouraging the initiation and implementation of change and accounting for new and emerging technologies.
1.13 This Workgroup was guided by one over-arching aim: to accelerate UK Continental Shelf (UKCS) development at maximum cost-effectiveness. Underlying this aim were three core objectives:
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maintaining a best-in-class regulatory environment |
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re-focusing the licence ownership structure |
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improving working relationships between licensees |
1.14 A number of Government/industry teams worked closely together to look at how to meet these objectives. Some of the main initiatives to develop these are set out below:
Licence Awards and Development Plans
1.15 The Task Force agreed that reducing regulatory burdens would improve the UKCS’s ability to attract and retain investment in the competitive global market. DTI announced a number of changes in March 1999 which will go a long way to achieving this objective. These include:
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a streamlined and more predictable licensing process; |
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longer production consents for both old and new fields, to increase company confidence when investing and encourage funding commitment; |
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"slim-line" development plans; |
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faster development plan approvals; and |
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greater flexibility on commitments from earlier Licensing Rounds, enabling exploration budgets to be targeted at the most promising prospects. |
1.16 DTI announced plans for a programme of annual Licensing Rounds, each covering roughly half of all available unlicensed acreage, and will be encouraging out-of-Round applications where there is synergy with exploration, appraisal or development activity.
1.17 A further package of measures, announced in May 2000, involves:
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more transparent procedures for licence applications, which will ensure that applicants are provided with information on DTI’s mark scheme, detailed feedback on their applications and details of the work programmes of successful bidders. |
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less production reporting to Government and earlier publication of results; |
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a new web-based system for approving drilling applications; |
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reducing the time taken to obtain Pipeline Works Authorisations; and |
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revised guidance clarifying decommissioning and development policy. |
1.18 These measures should increase competitiveness and encourage activity on the UKCS. Procedures will be simplified and shortened, reporting requirements reduced and the exchange and release of information will be speeded up.
Undeveloped Discoveries Initiative
1.19 This is a major Government/industry initiative which is looking at identifying potential clusters and issues hindering development. There are over 300 petroleum discoveries on the UKCS which have not been developed. Some were discovered in the 1960s while others are much more recent. A work group (including members from major oil companies, drilling contractors and the DTI) established under PILOT aims to aid the commercial development of currently undeveloped discoveries. The group is tasked with identifying and categorising such discoveries into:
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those fields which have a recognised programme of capital and investment expenditure by 2004 or which are ullage-restricted but will be developed as soon as possible; and |
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those fields which have no declared work programme within this timescale. |
1.20 Once analysis has been carried out, the group will report findings through PILOT, with the aim of recommending changes to processes and practices to facilitate development.
1.21 By the end of 1999, concerns were growing at the extent of acreage that was lying fallow. (In general terms, "fallow blocks" are those that have left their initial term but have seen no drilling for 6 years or more and "fallow discoveries" are those significant discoveries that have not been developed for 6 years or more). Those concerns led, in early 2000, to the announcement by the Minister for Energy and Competitiveness in Europe, Helen Liddell, of a new Fallow Blocks and Discoveries Initiative. DTI has initiated detailed discussions with operators aimed at finding ways of bringing forward new activity on fallow blocks and discoveries, including the potential relinquishment of blocks for which operators have no plans.
1.22 Decommisioning is an extremely important aspect of oil and gas activities which presents many challenges for the industry both now and for the future. Early in 1999, the Department asked UKOOA and the Oil and Gas Producers Association to consider the scope for collaboration between operators in developing a joint industry strategy on decommissioning. As a result, a group has been established consisting of those operators who will be faced with major decommissioning projects in the near future. The group, which has become known as The Early Decommissioning Synergy Group (TEDS), is designed to ensure that a co-ordinated industry approach is taken on decommissioning whenever possible.
1.23 More recently, the North Sea Decommissioning Group (NSDG) has been set up under PILOT. This industry-led group, which has a wider remit than TEDS, is an enabling group concerned with overall steerage, communication and co-ordination on such issues as encouraging new technology, promoting industry co-operation, realising synergy, and addressing environmental concerns. The OGITF concluded that by taking an industry-wide approach to decommissioning through collaboration, joint ventures and the encouragement of new technology significant savings - potentially up to £2 billion - could be achieved over the next 10 years. The NSDG has set itself this target.
1.24 At the same time, PILOT will continue to address some of the other decommissioning issues that are likely to have an impact on future UKCS activity. In particular, uncertainties about the handling of decommissioning liabilities is an area that requires clarification and work is under way to identify simpler, more efficient financial instruments to ensure the cost of decommissioning will be met. This is likely to include insurance as an alternative to the existing arrangements as well as an investigation of a more standardised approach to these arrangements. Such measures will not only achieve cost savings but will assist the exchange of interests in mature fields and so prolong field life.
PILOT Membership and Website Address
1.25 Membership of PILOT comprises five operators and six contractors/suppliers, one trade union member and representatives of a number of Government Departments.
1.26 In the Task Force, non-Government members were referred to as the Industry Leadership Team (ILT) which also met separately. In PILOT, the ILT has been expanded to include an additional five operator representatives and four contractor/supplier representatives. This has increased the number of perspectives available to the ILT and has combined even greater strength and depth with a manageable number of people. The ILT meets monthly and will be the primary access point for the industry as a whole.
1.27 In addition, a PILOT Network has been set-up to maximise discussion and input from all those involved in PILOT, and encourage wider industry involvement. The Network comprising members representing operators, suppliers, contractors, and some academics, takes the form of an electronic ‘bulletin board’ which allows for interested parties to air views and become involved in discussions.
1.28 More information about the ongoing work of PILOT can be found by accessing the PILOT Website at:
http://www.pilottaskforce.co.uk
1.29 Environmental issues were considered within the OGITF’s Environmental and Sustainable Development workgroup, which had a driving aim to help identify a sustainable future for the UK offshore oil and gas industry, in which industry competitiveness is enhanced whilst ensuring that the environment is protected. The group wanted to ensure that, in pursuing this aim, the industry looked to make prudent use of natural resources and take account of relevant social issues. Its vision for the future sees an offshore industry whose environmental performance is progressively improved and delivered cost-effectively.
1.30 The group specifically recommended an improved dialogue be established between Government, industry and environmental organisations on environmental issues affecting the oil and gas industry today. As a result two new bodies were formed:
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The Industry/Government Forum provides a focus for high level and authoritative consideration of environmental issues at a strategic level. |
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The Offshore Forum involving industry, Government, and environmental groups aims to develop a better shared understanding of offshore environmental issues and to provide a more effective face to face dialogue on key issues. |
1.31 Both groups have begun their work and there are already promising signs of a successful dialogue developing. Minutes of the meetings are available on the Oil and Gas Directorate website (http://www.og.dti.gov.uk).
EU/OSPAR Links
The Oslo and Paris Convention (OSPAR)
1.32 The Oslo and Paris Convention (OSPAR), which entered into force on 25 March 1998, lays down the rules for the protection of the marine environment of the North East Atlantic.
1.33 The United Kingdom is party to the Convention and therefore has a duty to report information on offshore discharges and emissions each year.
1.34 Inter-sessional work continued and agreement was reached at a technical level (SEBA 2000) on measures controlling the use and discharge of drilling fluids and chemicals.
1.35 The UK undertook to assist in further development of a measure on produced water.
1.36 The last meeting of the OGITF, in December 1999, agreed that the issues facing the offshore fabrication yards required specific attention. Preliminary discussions and analysis of the situation began immediately and the Oil and Gas Fabrication Support Group, comprising over 40 representatives of fabrication yard managements, the workforces and public sector bodies met in February 2000.
1.37 The Group reviewed future opportunities expected from the UKCS and the demand for future fabrication work over the short and medium terms. It examined opportunities for export business, particularly for floating production, storage and offtake units (FPSOs) and reviewed prospects in other sectors including decommissioning, offshore wind power generation and shipbuilding.
1.38 The Group agreed on a realistic level of future prospects which might arise as a result and recognised that there is substantial over-capacity in the UK fabrication sector. It concluded that the existing level of capability in the UK could not be sustained.
1.39 Although recognising that the future strategy for individual yards is a commercial matter for the owners, the Group agreed that the Offshore Contractors Association should meet the UK Offshore Operators Association. Group discussions surrounded ways in which the public enterprise, training and employment infrastructure can work with the yards. Further work is under way on a regional basis.