Technology from Europe:
United Kingdom

Wilson expresses hope among doubts on UKCS

Brian D. H. Wilson

 Energy Minister Brian Wilson has grappled with Britain’s stagnant E&P activity since his tenure began. Yet, as he told World Oil recently, he believes government’s proactive measures are beginning to improve the situation.

  Question: Minister Wilson, please describe your department’s regulatory mission. 

 Answer: We aim to maximize economic oil and gas recovery from the UK Continental Shelf (UKCS). There are still prizes to be won by investors. Various initiatives are underway through the PILOT program to promote/ensure continued activity. We also need to maintain/ enhance industry competitiveness, and promote UK business overseas.

 We need the right mix of companies. We have succeeded in attracting new players, and a range of views was aired upon BP’s sale of Forties field. This is good news for the UKCS. The underlying priority is to ensure that licensed assets are held by companies best able to exploit them.

 Asset changes like this ensure that both seller and buyer can re-focus their investments, and positively assist the long-term UKCS future. Although it sold a significant asset (Forties) that was the UK’s first big oil field, BP remains a large UKCS presence and is committed to further investment. Apache’s North Sea entry shows the interest from new players. Apache is very successful and intends to pursue innovative strategies to enhance Forties’ oil recovery. 

  Q: Was 2002 a disappointing year for British E&P firms?

 A: We must recognize that the UKCS is maturing. Output has effectively peaked. In 2001, offshore production was about 850 million bbl of oil and 4.5 Tcf of gas. Remaining reserves are between 7.5 billion and 11 billion bbl of oil, and between 40 Tcf and 54 Tcf of gas, excluding smaller finds and discoveries not yet made. Output share from older, larger fields is dropping steadily.

 Exploration drilling is disappointingly low. Many news articles describe the North Sea as being in decline, but we should not be so pessimistic. In 2001, DTI approved 21 field developments. Last year, I approved 15 more. We also confirmed additional reserves in the Buzzard find. With about 1 billion bbl of oil in place, Buzzard may be the largest UKCS discovery in the last 20 years.

 However, we have to encourage more drilling and investment on the UKCS now. It is essential that we maximize recovery by increasing exploration drilling and making the most of existing infrastructure.

 Our government has tried to inject new life into North Sea areas through its “fallow initiative.” During 2002, much effort was put into provoking activity on fallow areas. Compared to other oil provinces, it was apparent that our approach did not pressure licensees enough to deliver from their tracts. So we devised processes under which fallow asset-holders face increasing pressure to use, divest or relinquish.

 The first two sets of 39 and 77 fallow assets were released in September and March. Further acreage will be offered quarterly. There has already been success. As 2003 began, 90 blocks identified as having no drilling in four years were no longer termed fallow. Among discoveries lacking an approved development plan within four years, 20 are no longer fallow. 

 We are enhancing licensing by introducing a “Promote License.” It will have a time period during which licensees can work up potential prospects – mostly using existing data – without an early commitment for substantial seismic or drilling. Eventually, they must commit to drilling or similar, substantive work following the assessment period, or else sell the tract or bring in partners.

 We aim to attract smaller, niche firms that want to evaluate prospects that seem unpromising to others. Our system also allows the entry of companies that have the greater resources needed to develop finds. In addition, I announced the 21st Round this February, which is active and incorporates the “promote” element. We will receive bids over the next few months. I hope to award blocks in the summer.

  Q: What activity level do you expect for 2003?

 A: DTI’s annual E&A (Exploration and Appraisal) survey with UKOOA was conducted last autumn and published last month (March). Excluding sidetracks, some 30 E&A wells are expected in 2003, close to the 32 wells drilled in 2002. E&A spending should remain at £400 million/year ($642 million/year) in the near future. The DTI/UKOOA survey estimated 2002’s capital development expenditures at between £3.3 billion and £3.8 billion ($5.3 billion and $6.1 billion). The 2003 level is likely to be at that range’s lower end. A survey summary is available on UKOOA’s website (www.ukooa.co.uk). 

  Q: What role do you play in E&P tax policies and exploration tract access? 

 A: The main debate concerns UKOOA’s request for removal of Petroleum Revenue Tax from new business, to promote more North Sea activity and win Norwegian business. My officials, working closely with Inland Revenue and Treasury, have met several times with UKOOA and individual firms. At these meetings, they have offered evidence to demonstrate that tax causes commercial distortions. I think we agree that these meetings are useful, and everyone is working the issue constructively. Officials will consider results of this consultation very carefully.

  Q: In which initiatives does DTI participate to help UK firms worldwide?

 A: We support numerous initiatives. For example, I visited Algeria with representatives of British operators. One initiative that we are planning is a May event on various systems, such as floating LNG (FLNG), floating GTL (FGTL) and FPSOs. This will be based around the Bonga FPSO that is in AMEC’s yard in Wallsend. Key, potential clients will be invited to presentations by UK firms on these technologies. 

 Trade Partners UK recently organized an event for British firms to show their small/marginal field development expertise to senior E&P executives in Malaysia. Also this year, I signed a pact with the Philippines that should boost British involvement in Southeast Asian energy. The deal has us joining forces to develop our power industries while focusing on expanding sustainable energy technology development and application. 

 There is also the UK/Norway North Sea Cooperation Work Group, through which we work with Norway’s government and industry to create (in effect) a single North Sea market.

  Q: What are some major projects that UK companies are involved in?

 A: The contract to construct and install Shell’s Bonga FPSO topsides (deepwater production offshore Nigeria) is one of the largest contracts ever won by the UK. AMEC’s £300-million contract involves many other UK supply and service companies. AMEC is also deeply involved in developing Sakhalin Island’s offshore fields, in Russia’s Far East. 

 Another project is BP’s Clair development, West of Shetland. This major project uses innovative working practices. Success on Clair will show that the UK industry can adapt to changing environments and be relied upon to deploy improved working practices anywhere on the globe. Adopting these practices is important to achieving PILOT’s goal of increasing UK technology exports. 

  Q: Does any project exemplify British companies’ upstream technologies?

 A: I can cite Shell Expro’s Penguin field and BP’s Rhum field. Penguin is a 65-km (40-mi) subsea tieback of a gas/condensate field to the Brent C platform. Rhum’s development will be a 45-km (28-mi), subsea, high-pressure, high-temperature (HP-HT) tieback to the Bruce CR facility. It will use corrosion-resistant alloys, pipe-in-pipe technology, and leading-edge subsea well completions and production trees. 

  Q: Have some recent projects focused on UK technical capabilities? 

 A: Award of the Bonga topsides to AMEC and others is an important UK milestone. Expertise demonstrated by the UK on this and similar projects will keep us well placed for the emerging technologies of FLNG and FGTL.

 Britain has the world’s largest, offshore HP-HT producing area with recent gas/condensate developments at Jade, Franklin, Elgin and Shearwater fields in the North Sea. They provide 8% of UK gas supply, plus substantial condensate volumes. This area employs many new technologies allied to our advanced, alloy fabrication skills. These fields’ topsides were assembled in the UK. Their installation set records for the heaviest single lift and heaviest jackup platform.

 A significant item that began in late 2002 is BP’s Magnus EOR project. This effort includes a new, 400-km (249-mi) pipeline that, for the first time, brings gas from West of Shetlands to UK and European markets. Primarily, however, it delivers additional oil reserves via gas injection into the Magnus reservoir. 

  Q: Can a strong E&P industry be a good backstop to supply disruptions stemming from a war in Iraq?

 A: Regardless of whether military action occurs, diversity of oil and gas supplies (where economic) will remain important for energy security. The two are closely linked. To rely too much on energy from a single fuel, technology or supply source may run the risk of either failure of supply or significant price distortion. Thus, a key part of energy security is an acceptable diversity level, to assure flexibility to respond to the unexpected.

  Q: Toward which regions do you think operators’ interest is moving?

 A: It is always difficult to second-guess companies’ interest and investment direction. There is continuing interest in deepwater areas, such as the Gulf of Mexico, Brazil, Angola and Nigeria, while some smaller West African countries (Equatorial Guinea and Sao Tomé & Principe) are attracting attention. Mature areas in the Former Soviet Union, North Africa and the Middle East are also opening to foreign investment. 

  Q: Will you accompany the British delegation to OTC? 

 A: I will visit the Offshore Technology Conference in Houston next month, and am pleased to say that the UK/Scottish group is again OTC’s largest national pavilion, with over 100 exhibitors. The wide products/services-range shows the extent of UK expertise and experience.

  Q: You want to attract new players to the UK. How will you do this?

 A: My department has worked hard over the last two years to raise the UKCS’ profile, particularly in the US. We have tried to attract independents that can drill wildcat wells and exploit the value chain from exploration to development. We also want niche developers, particularly those that can put undeveloped discoveries onstream via technically innovative, best-cost solutions.

 We have had some success. About 15 new entrants arrived in the last two years, four of whom were licensed in the last (20th) round. Some entrants (ATP, Challenger Minerals, Palace Exploration, Newfield Exploration and EOG) are making a positive impact. Also, various Canadian firms have made significant in-roads into the UKCS.

 To show potential new entrants what the UKCS has to offer, and explain the regulatory framework, we have produced a “Promote UK” CD-ROM. This has been effective in marketing the province. These moves show renewed, continuing interest, with a dynamic mix of operators taking the UKCS into its latest phase of maturity.