POLICY

Energy minister says healthy UKCS sustained by technology and policy

British governmental policies that include the PILOT initiative, a joint government / industry project, are addressing such issues as maintaining investment levels, renewing the labor pool and working more efficiently through technology

Interview by Stuart Wilkinson, Contributing Editor, Latin America

CARACAS – British Minister of State for Industry and Energy Brian Wilson recently visited Venezuela to meet with that country’s energy officials. While in Caracas, he sat down with World Oil Contributing Editor Stuart Wilkinson to discuss the UK’s current oil and gas situation and policies.

"Continued investment is vital. The right licenses must be in the hands of the right players."   Brian Wilson, UK Minister of State for Industry and Energy

Q. What are the reasons for the British mission to Venezuela?

A. There are a number of strands to my visit of Venezuela. The UK is keen to build on its existing close relationship with Venezuela and develop closer ties. Venezuela is already the UK’s second largest market in Latin America, but I am keen to see the level of bilateral trade increase still further. I am convinced that there is ample scope to achieve this.

Venezuela has ambitious, impressive plans to develop its hydrocarbon resources. The UK has great expertise and knowledge in this area. UK companies are enthusiastic to work with Venezuelan partners to help achieve these ambitious targets. I am also aware that Venezuela is keen to develop its local industry to service and support activity in the upstream sector. The UK is an excellent reference point to develop such a strategy, and I have no doubt that (the two countries) are very well-placed and well-suited to work together to realize these targets.

Q. Development of a national gas grid is important to Venezuelan energy policy. The UK is experienced in this area, so British firms should be able to play an important role. What are your plans for getting involved?

A. British companies are eager to play a role. We have invited a Venezuelan delegation to visit the UK and learn firsthand the policies that led to the development of our own national gas grid.

Q. Back home, what is the UK government’s attitude regarding oil and gas exploration and development?

A. Our overall aim is to maximize the UK’s economic benefit from its oil and gas resources, while taking into account the environmental impact of hydrocarbon development, and the need to ensure secure, diverse and sustainable energy supplies at competitive prices.

Key objectives in support of this aim are to:

• Promote exploration for oil and gas resources over the maximum extent of the UKCS by means of an appropriate licensing regime that pays due regard to the environment, and to the interests of other land and sea users
• Regulate to promote oil and gas developments that are technically, economically and environmentally sound
• Promote open, competitive markets, and strong companies in UK and EU policy formulation and in international discussions.

Q. What changes in UK upstream oil and gas policy do you envisage over the next 12 months?

A. The industry is facing a number of challenges, which I see as threefold. The first is maintaining investment. It has been a long, hard road to get back to the levels we enjoyed before the oil price collapsed in 1998. Continued investment is vital. To achieve this, the right licenses must be in the hands of the right players. The UKCS is still a great place to do business. We now need to concentrate on the future and make that as profitable as the past.

The second is about working differently. This is about behaving differently. The PILOT initiative (cooperative effort between government and industry) has also been pushing forward to address such behavioral issues. The Progressing Partnership Work Group (PPWG) is tasked with identifying all the commercial barriers to development that still exist on the UKCS. There is also an exploration workgroup aiming to ensure timely, efficient exploration. Both groups are due to report their findings early next year.

The third is about attracting new blood into our industry. While our oil and gas workforce is expert and vastly experienced, it is aging rapidly. The situation is not sustainable. Future UKCS competitiveness depends on recruiting young people into the sector and retaining them.

More generally, I currently chair an energy policy review (carried out by the Performance and Innovation Unit, Cabinet Office). This review has been set a vital task – identifying the longer-term strategic objectives of UK energy policy. We are examining all aspects of energy policy, including how we can meet the global warming challenge. We must also ensure reliable, competitive energy supplies for the next generation. The review is considering the role of coal, gas, oil and renewables in our future energy balance, as well as combined heat and power, and the enhancement of energy efficiency. To be comprehensive, the review also needs to consider what, if any, role the nuclear industry should play in meeting the environmental and security portions of supply objectives.

Q. What has become of the LIFE (LIFT Inspired Farm-In Event) program?

A. LIFE, a UKOOA (UK Offshore Operators Association) initiative, ran for a short period of time to fill a gap in the UK offshore licensing round schedule. However, the successful 19th Round offshore, which closed in February 2001, took away the need for the LIFE initiative, and the 19th Round became the focus of industry interest.

The concept of asset swapping and the need to ensure that operators make the most of the acreage they possess continues to be important. The LIFT (License Information for Trading) process still exists and allows operators to make use of e-commerce to facilitate acreage trades.

Q. There has been recent talk from your government that operators must begin to "use or lose" fallow licenses. How serious are you about that?

A. It is, in my view, essential for the UKCS’ future health that licenses are in the hands of players with the skills, interest and resources to maximize their value. That is why it is so important that the Progressing Partnership Workgroup works within the PILOT initiative to find ways to achieve this by changing commercial structures and behaviors within the existing contractual / licensing framework.

It should not be in the long-term interest of any company to hold acreage for which it has no plan for exploration or development, so we are looking at a win-win outcome. The industry has already achieved a great deal though the fallow initiatives, and I have great confidence that, in the tradition of PILOT, we will find an effective, efficient solution. If we do not, then clearly, given the importance of the issue, we will need to decide if there are other ways of achieving this goal.

Map courtesy of Petroleum Economist. Click for enlarged view

Q. What are the latest government initiatives to promote and enhance the use of advanced exploration, drilling and production technologies?

A. Launched through the PILOT initiative, there are two main schemes to promote development and use of new E&P technology. First, the Industry Technology Facilitator (ITF) was designed specifically to accelerate development of key enabling technologies for the UKCS. It focuses on four technology themes – wells, subsurface installations, processing facilities and decommissioning. An efficient procedure has been developed for receiving and reviewing innovative technology proposals from contractors, suppliers, research bodies and academia.

To date, 321 proposals have been received by ITF, of which 77 have been recommended for support. As a result, 24 new collaborative industry projects have been launched, with a total committed investment of £4.8 million. The new technology now under development includes a device to allow continuous mud circulation, drilling pipe changeovers and a tool that can see through crude oil to carry out inspections.

There is also the Nova Technology Fund, a venture capital fund that provides a new source of private equity finance for small-to-medium-sized enterprises (SMEs). Specifically, Nova seeks to support the commercialization of innovative technologies in the oil and gas supply chain. More information about both of these initiatives can be found on the PILOT website: www.pilottaskforce.co.uk

In addition, a number of avenues – OGID (DTI), Innovation Group (DTI), Research Councils (including EPSRC and NERC), Regional Bodies (including the Scottish Executive) and participation in EU projects – are available to provide direct funding through grants to support development of new technologies. A recent example of this type of funding is the "Oil and Gas Extraction Programme," which has generated a number of LINK collaborative research projects involving the industry (including SMEs) and universities, funded by the Industry, EPSRC and OGID (DTI).

Q. Can you give us examples of British firms that have introduced recent technology advances?

A. Many of the companies involved in the UK oil and gas sector are renowned as world-class, continuing to use innovative solutions to explore and develop new and existing fields. Cutting-edge technology is being used on the UKCS, particularly in the central North Sea, where a number of fields fall into the high-pressure, high-temperature (HPHT) category. Shell’s Shearwater field, which went onstream last year, and TotalFinaElf’s Elgin / Franklin fields, which started production this year, are particular examples.

With capital expenditure of some £1.65 billion, Elgin / Franklin is the largest UKCS development since the early 1980s. It is also the largest offshore, high-pressure, high-temperature development in the world, as well as the largest, single steel structure ever fabricated for the North Sea and largest jack-up structure ever built. Franklin is also the deepest, hottest field in the North Sea.

Q. What, if any, effect do you think the American / British (and other allies) war initiative against terrorism will have on oil prices?

A. This continues to depend on the scale and focus of the response. There is likely to be increased uncertainty, which, in turn, could lead to some market volatility. Of course, volatility is not new to the oil market. A period of sustained, high oil prices would put increased economic pressures on all oil-consuming countries. However, experience shows that the resulting lower demand for oil usually means these price shocks are a short-term phenomenon.

Q. Are your oil company operators taking steps to protect offshore installations from attack?

A. The government and industry take advice from security services on the risk of terrorist attack. We have, in place, contingency arrangements to mitigate the risk of disruption.

Q. Judging by words spoken at the beginning of October by Prime Minister Tony Blair, the UK and U.S., in particular, are in for a long campaign against terrorist elements. Will this have an effect on where British and U.S. operators choose to do international upstream business during the next couple of years?

A. I think that all operators around the globe will be looking at current and future investment activities, with a possible view to refocusing their priorities. Nothing changes the fact that the UKCS continues to offer opportunities for companies with drive and determination, and who are able to apply innovative approaches to new exploration, appraisal and development activity.