1 PILOT and other Government/Industry initiatives
OIL AND GAS DIRECTORATE
1.1 The Oil and Gas Directorate of the Department of Trade and Industry’s overall objective is to:
"Maximise the economic benefit to the UK of its oil and gas resources, taking into account the environmental impact of hydrocarbon development and the need to ensure secure, diverse and sustainable supplies of energy at competitive prices."
1.2 To achieve this objective it aims to:
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promote exploration for oil and gas resources over the maximum extent of the UK Continental Shelf by means of an appropriate licensing regime which pays due regard to the environment and to the interests of other land and sea users; |
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regulate and promote oil and gas developments which are technically, economically and environmentally sound; |
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promote open and competitive markets and strong companies in UK and EU policy formulation and in international discussions; and |
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collect, analyse and disseminate data relating to the UK’s hydrocarbon reserves. |
The Buchan platform located 156 kilometres
North-east of Aberdeen.
Courtesy of Talisman Energy (UK) Limited
1.3 After over thirty years’ activity, the North Sea’s oil and gas reserves remain a valuable resource for the UK. The UK industry’s expertise in identifying and developing reserves in some of the world’s most inhospitable environments can provide engineering solutions to the economically viable and environmentally sensitive recovery of previously unattractive fields. Co-operation between Government and industry is essential to ensure that this continues to happen.
1.4 The main forum for this co-operation continues to be PILOT, which has persisted with its programme of work aimed at securing improvements in the international competitiveness of the UK industry and continued exploration and development activity on the UKCS.
1.5 All this work is in pursuit of the PILOT vision for 2010:
"The UK Oil and Gas Industry and Government working in partnership to deliver quicker, smarter and sustainable energy solutions for the new century. A vital UKCS is maintained as the UK is universally recognised as a world centre for the global business."
1.6 Ambitious and measurable targets were set to meet this vision:
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A production level of 3 million barrels of oil equivalent per day in 2010 |
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A sustained investment level of £3 billion per year |
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A 50% increase in the value of industry-related exports (by 2005) |
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An additional revenue of £1 billion from new businesses |
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100,000 more jobs than there would otherwise have been in 2010 |
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prolonged self-sufficiency in oil and gas for the UK |
1.7 Over the last year the work of PILOT has focused on turning the vision into reality.
1.8 Stimulating increased investment on the UKCS continues to be a priority, and in particular the problem of acreage which remains unexploited despite containing potentially valuable reserves. Action taken here includes:
1.9 Brown fields are those which are beyond their production plateau but are still producing. PILOT’s Economic Advisory Group identified a possible reserves target of around 2 billion barrels of oil equivalent recoverable from brown fields, over and above today’s proven and probable reserves. These reserves are dependent on existing infrastructure and, if developed, would maintain the economic lifetime of that infrastructure. A workgroup has been established by UKOOA to identify the distribution of potential reserves, test potential reserves against current plans and establish permanent benchmarking to act as a stimulus for improvement.
1.10 PILOT’s knowledge pool was put to good use producing a plan to develop some of the UKCS’s undeveloped discoveries. Prospects have been grouped, either by geography or the similarity of technical challenge, into clusters, with "champions" being appointed to drive progress forward in unlocking such developments. The first indicators of possible development plans on these clusters are expected towards the middle of 2001.
1.11 In response to discussions in PILOT, the Department made clear it would review those blocks awarded in the First to Tenth Licensing Rounds on which no drilling had taken place for at least six years ("fallow blocks"), and those discoveries that had remained undeveloped for a similar period ("fallow discoveries"). In response, by the end of 2000, of the 199 blocks that were identified as fallow at the beginning of the initiative:
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3 had been drilled; |
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19 had firm drilling plans; |
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38 had been relinquished or will be relinquished in the next 12 months to companies who are prepared to exploit them; and |
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a further 77 were to see new geophysical work that will lead, within 12 months, to an action plan or to relinquishment. |
1.12 Many of the 125 fallow discoveries would be uneconomic to develop at present, but 18 are to be brought to development and another 15 have been or are in the process of being advertised for sale. Some of those not currently viable may become economic in future with new pipeline capacity or technical advances and DTI continues to monitor them. This process has been facilitated by the LIFT (Licence Information for Trading) website (http://www.uklift.co.uk) and, as agreed by PILOT, will be repeated annually.
1.13 In March 2000 LIFT, the oil and gas licence asset trading website set up as a part of the work of PILOT, was adopted by the new world-wide asset trading website Indigopool, a web portal which allows exploration and production companies to market oil and gas assets internationally. It brings together similar asset trading web-sites onto one internet address. With the integration of LIFT, the web-site makes it possible to trade assets in the Gulf of Mexico for those in the UKCS.
1.14 This access to a world-wide audience means that LIFT, which had already stimulated increased asset trading on the UKCS, has an even wider potential to influence positively the cost-effective development of the UK’s remaining oil and gas reserves.
1.15 In September 2000 DEAL went live on the world-wide-web at: http://www.ukdeal.co.uk. An initiative conceived by PILOT’s Regulation and Licensing Group, the DEAL system informs on the location and availability of UKCS well information and seismic data available to the oil and gas industry, and provides a map search facility. DEAL offers many benefits to the industry, particularly time and cost savings in trying to locate availability of data and contact names.
1.16 In January 2001 a new initiative, LIFE (LIFT Inspired Farm-in Event), was launched. The scheme aims to stimulate further exploration activity on the UKCS by encouraging oil and gas companies to participate in new partnership arrangements. It allows companies to submit proposals either in the form of work programmes or funding in return for an equity stake. Details can be found on the LIFT website (http://www.uklift.co.uk). This is a new approach which aims to encourage innovative technologies and fresh ideas for the development of licence blocks which have not been exploited fully.
1.17 This initiative, run by LOGIC - www.logic-oil.com (Leading Oil and Gas Industry Competitiveness), aims to speed up the development of technically marginal or commercially challenging discoveries by inviting innovative solutions from the industry as a whole, not just from the operators. The underlying principle is collaboration on a risk share/reward share basis with LOGIC acting as the data source for potential projects. Encouragingly the first project, BP Wood, actively involved over 20 companies.
1.18 The competitiveness of the UK supply chain is crucial to the continued attraction of the UKCS to global investors, the success of UK business in bidding for overseas work and the industry’s continued strength as an employer in the UK.
1.19 LOGIC continues to tackle competitiveness issues and deliver the message of the benefits of good supply chain management. LOGIC has also taken on the role of assessing and disseminating information about key developments in the world of e-commerce and has delivered a series of workshops nation-wide on the subject.
1.20 The UK currently has a 4% share of a world oil and gas market worth about £100 billion - PILOT aims to increase that share to 6% by 2005. Trade Partners UK (TPUK) will be the spearhead with 12 target countries having been identified. TPUK has established strong links with industry bodies with proven track records in encouraging export activity and the DTI is considering using exports as a theme in the next stage of its mentoring programme (see paragraph 1.32).
1.21 TPUK has more resource dedicated to oil and gas than to any other single sector. In addition to a substantial team based in Glasgow and London, TPUK have around 44 man years effort put in by commercial staff in British Embassies and High Commissions around the world. During the last financial year, TPUK contributed to companies winning around £450 million of new export business.
1.22 There is a three-pronged strategy aimed at positioning UK companies well to win overseas business, conditioning overseas markets and Governments to be receptive to UK companies and overcoming barriers restricting potential export growth. This proactive approach is bearing fruit. A recent success was highlighted when the Prime Minister announced a major win for AMEC on the Bonga project in Nigeria, whereby £300 million of fabrication work will now come to the UK, securing some 4,000 jobs. TPUK played a major role in helping AMEC win this work.
1.23 DTI, in partnership with the industry, commissioned two studies which have identified a number of short, medium and long-term opportunities for UK oil and gas suppliers:
Environment - The current UK environment market (including the oil and gas sector) is worth £8.5 billion per annum (based on 1998 estimates) and is forecast to grow to £10 billion by 2010. The total global market for environmental goods and services is estimated at some £200 billion per annum and estimated to grow to around £440 billion by 2010.
Diversification - Combined renewable energy, transport infrastructure and logistics and gas distribution represent an estimated £33 billion of additional business in the UK alone.
1.24 To achieve the vision of £1 billion a year of new business by 2010 the UK oil and gas supply chain needs to secure either:
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0.4% of the world environment market or |
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3% of the UK renewables, gas distribution, transport, infrastructure & logistics markets. |
1.25 In March 2001, the Energy Minister launched a New Business CD-ROM outlining the results of these studies. This will be issued to about 6,000 companies in the UK and a series of events will be held around the UK to provide further publicity.
1.26 With new development projects slowed as a knock-on effect from the fall in oil price in 1998, numbers employed at UK fabrication yards have gradually declined over the last few years to the extent that the sector is currently sustaining only some 2,000 jobs directly.
1.27 PILOT has succeeded recently in provoking increases in investment on the UKCS, but due to the nature of new developments (many being tied back to existing infrastructure with consequently little need for the type of heavy fixed platform) this renewed activity will not be reflected in an equivalent demand for fabrication.
1.28 Fabricators are, however, adapting well to the changing needs of the industry, winning work from subsea tiebacks, minimum facilities platforms and from outfitting FPSO (Floating Production, Storage and Offloading System) topsides. Nevertheless the fabrication companies, recognising the imbalance between supply and likely future demand, have begun to reconfigure their productive capacity and to rationalise.
1.29 DTI’s Oil and Gas Directorate manages the Fabrication Support Group (FSG) - a PILOT sponsored mechanism -which continues to engage with the industry to help it identify and implement solutions such as winning work overseas, diversification and rationalisation through mergers.
1.30 In parallel the FSG is co-ordinating nationally the work of a number of training organisations, regional Enterprise bodies, Regional Development Agencies (RDAs), Trade Unions and Local Authorities to mitigate the impact on the workforces around the country. The FSG’s objective is to co-ordinate, for delivery at local level, a national strategy with the following 5 threads:
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Stimulation of UKCS investment - PILOT |
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Export markets being pursued by Trade Partners UK |
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Regional work on skills and training |
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Redevelopment finance available through RDAs and equivalents |
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Diversification support - e.g. alternative energies. |
1.31 This voluntary initiative, with over 30 operators and major contractors and suppliers, sees a senior individual act as a contact point for any company that feels its treatment is at odds with the stated policy of the customer. This recognises the importance of transparency and consistency in contracting practices and the champions meet half-yearly to discuss best practice and assess overall industry behaviour.
1.32 The aim of the business-to-business mentoring initiative to improve and develop relationships between operators, major contractors and major equipment suppliers, and SMEs in the oil and gas supply chain. Managers have been seconded from industry to act as business mentors offering guidance on aligning their business strategies and practices to make the most of likely future developments in both the UKCS and the international marketplace.
1.33 The National Training Organisation (NTO) Group established by PILOT has continued its programme of providing career and training advice and highlighting the skills and qualifications required by the industry. It has launched a two-way web-based recruitment service Oilcareers.com to maximise awareness of the employment opportunities within the industry. Hundreds of organisations have registered to use the system and there are over 2,000 registered candidates.
1.34 The Offshore Petroleum Industry Training Organisation (OPITO) is currently concentrating on technician training and assessing demand across all sections of the industry. PILOT and OPITO have been able to identify what could become a serious issue and are now working to develop an industry-wide response. The NTO Group is also working with employers and trade associations in targeting students, teachers and parents to make them aware of the opportunities the industry has to offer.
Routine maintenance being carried out on the
Piper 'B' platform
Courtesy of Talisman Energy (UK) Limited
Skiff platform, North Sea, tow-out/installation
Courtesy of Shell UK
1.35 With the help of Government and in consultation with other stakeholders, the industry has made significant progress in this area. UKOOA has launched a Sectoral Sustainability Strategy under four main headings: Economic, Social, Environmental Performance and Resource Stewardship.
1.36 UKOOA has also agreed, with DTI, Guiding Principles of Regulation on environmental issues allowing the industry to work and plan within a clear, consistent and well-understood framework. PILOT has also worked on European issues, forging links with European-wide organisations to ensure that matters affecting the UKCS are considered on a wider stage.
1.37 The oil and gas industry is also developing a trading system based on flaring consents. The voluntary scheme, originally initiated by PILOT, currently involves eleven operators who are seeking to reduce the level of flaring at more than 55 offshore fields. Main aims are to continue the reduction in the overall quantity of gas flared, provide early experience of target setting and trading mechanisms, and to prepare the industry for possible integration into wider emissions trading schemes that are being developed for UK industry. The Government welcomes this initiative which, while reducing offshore emissions, should also provide operators with increased flexibility in their day-to-day management of offshore operations.
SUSTAINABLE HYDROCARBONS ADDITIONAL RECOVERY PROGRAMME (SHARP)
1.38 The Sustainable Hydrocarbons Additional Recovery Programme commenced on 1September 2000,on completion of the previous Hydrocarbons Additional Recovery Programme (HARP). DTI’s expenditure in 2000/01 on these was £2.73 million. The programme aims to provide DTI with technical support to fulfil its regulatory function of ensuring maximum recovery of economic oil and gas from UK fields, and to foster and sponsor innovative techniques for improved recovery and mitigation of environmental impact. The programme also has provisions for conducting studies on technical, economic and environmental aspects of decommissioning offshore installations.
1.39 Dissemination events, including an improved oil recovery research dissemination seminar, a number of workshops and publishing of generic studies undertaken by AEA Technology and the Universities, were carried out during 2000/01. The 21st Annual Workshop and Symposium of the International Energy Agency’s Enhanced Oil Recovery Collaborative Programme was hosted by DTI in September 2000, supported by Heriot-Watt University. Several papers from work done in SHARP were presented. Further studies and research on improved oil recovery topics were carried out through Joint Industry Projects. Joint Industry Projects launched this year included the Imperial College Consortium on Streamline-based Simulation and further work by AEA Technology in Improved Gas Condensate Reservoir Management.
1.40 The ITF (Industry Technology Facilitator), focusing on four technology themes - wells, sub-surface, process facilities and decommissioning - was established to accelerate the development of key enabling technologies for the UKCS. An efficient procedure has been developed for receiving and reviewing innovative technology proposals from contractors, suppliers, research bodies and academia. As a result, ten new collaborative joint industry projects have been launched. It is clear that the UK oil and gas industry now has a much more effective means of stimulating and screening new technology ideas which can rapidly be moved into the development phase. The system of joint funding by several operators both shares the costs and maximises the chance of early implementation.
1.41 The Government continues to adapt its offshore regulation, in order to match the ever-changing climate and economics of North Sea activities and the natural shift in emphasis of company interests and activities. New initiatives include:
1.42 In May 2000 measures were announced to improve the transparency of the oil and gas licence award process. Under the new system, potential applicants for licences will receive information from DTI on the mark scheme criteria that will be used to assess applications; the work programmes of successful applicants will be published and unsuccessful companies will receive more detailed feedback.
1.43 A web-based system for oil production reporting - a world-first in the industry - has also been introduced. The initiative was aimed at cutting red-tape and speeding up the reporting process. The new system went live, ahead of schedule, following tests in the Shell-operated Eider field and the Neptune field run by BG International. In future, DTI plans to increase opportunities for e-commerce and is building a secure electronic business infrastructure to allow data to be collected, validated and eventually published on the web directly from internal databases.
1.44 In November 2000 a package was launched to make it easier for the oil and gas industry to apply for DTI consent to drill oil and gas wells. The Well Operations and Notifications System (WONS) provides a ‘one-stop-shop’ electronic transaction system exclusively on Oil and Gas Directorate’s internet site (http://www.og.dti.gov.uk). The introduction of WONS means that DTI can give consent to a programme of activities on a particular well, so replacing the need for operators to apply for separate consents during the drilling process. Benefits to the industry include the reduction of paperwork and a system allowing licence operators to make on-line applications for consent and then monitor their progress. This latest application of e-Government introduces a much more efficient consent system without sacrificing any of the environmental safeguards that the Government and the oil industry have embraced. It is the first e-commerce business transaction process to be made available to industry by DTI.
1.45 The Department aims to set a regulatory framework within which exploitation of oil and gas can take place in an orderly way. The main post-licensing regulatory control is the need for licensees to agree with the Department a Field Development Programme (FDP, commonly known as an "Annex B"). DTI’s handling of FDPs was fundamentally reviewed in 1993, leading to the publication of Guidance Notes on Procedures for Regulating Oil and Gas Field Developments, and was reviewed again in early 1999 by the Oil and Gas Industry Task Force. Further streamlining was announced in March 1999. Following extensive consultation with the industry, in September 2000 the Department issued updated Guidance Notes which, amongst other things, reflect these procedural changes; these are available on the OG website.
Oil and Gas Infrastructure: Access Provisions and Voluntary Arrangements
1.46 Offshore infrastructure (upstream pipelines and processing facilities) is built and owned by a variety of companies and consortia. Third party access to this infrastructure both reduces the proliferation of oil and gas pipelines and where third party fields are too small to support their own infrastructure, contributes to ensuring the maximum recovery of reserves. This can lead to tension between the efficient use of resources and the wish for competition between infrastructure systems. The process of negotiation of third party access to infrastructure is subject to a voluntary industry Code of Practice and backstops in both oil and gas and competition legislation.
1.47 When the Offshore Infrastructure Code of Practice was introduced in January 1996 it included a commitment to a review after three years in order to see how well it was working. That full review was postponed so that it might also address any updating of the Code required to reflect the implementation of the EC Gas Directive in the Gas (Third Party Access and Accounts) Regulations 2000, which came into force on 10 August 2000. An interim review in 1997-98 had found that the Code was generally working satisfactorily.
1.48 A consultation document Oil and Gas Infrastructure: Access Provisions and Voluntary Arrangements, published on 15 February 2001, sought comments on updating the Code and on its continuing effectiveness. The Department’s proposals in the consultation document, including minimum requirements for publication of main commercial conditions for onshore gas processing, were intended to encourage a pro-competitive environment in relation to third party access to oil and gas transportation and processing infrastructure.
1.49 In response to as-yet unsubstantiated complaints about high tariffs, the Department sought to use this consultation to establish whether such complaints were well-grounded and whether high tariffs were a barrier to exploration for and development of new fields. The consultation also included proposals for guiding principles on the use of the Secretary of State’s powers to settle disputes over access to pipelines and other infrastructure when requested by third parties. Publication of these guidelines should create a framework which is better understood by industry, resulting in a positive effect on their future tariff negotiations.
1.50 PILOT will continue to meet throughout 2001 to maintain momentum towards achieving its objectives, and further develop good working relationships between Government and industry.
1.51
All members of PILOT agree that the key tasks over the next year are to:
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Maintain current levels of involvement throughout the industry |
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Provide dynamic leadership for the change process |
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Seek new challenges and opportunities for the industry |
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Guard against complacency |
1.52 A significant amount of information on the work of PILOT, including press releases, initiatives and workgroup reports can be found on the PILOT website: http://www.pilottaskforce.co.uk.