North Sea
Regional Update

Wicks sees better North Sea market, vows further offshore improvements

In an exclusive interview with World Oil, British Energy Minister Malcolm Wicks explains how UK activity is recovering offshore, and he describes plans for further improving Britain’s upstream sector.

Question: How do you describe your role/ mission in interacting with the British upstream oil and gas industry?

Answer: I am determined to do all I can to maximize economic recovery of the UK’s oil and gas resources, and to maintain strong levels of investment and activity in the North Sea. Up until the end of 2004, industry had produced around 34.5 billion boe in the UK, with up to 22 billion boe remaining to be produced. So, there are still plenty of opportunities for those companies with the drive and determination to turn them into a reality.

Government’s role is to set a stable but adaptable regulatory framework which encourages companies, new and old, large and small, to invest in the UK Continental Shelf. We are working very closely with the UK industry through PILOT, the oil and gas forum that I chair, on a number of fronts to ensure that the regulatory and commercial climate here is properly shaped to allow the North Sea’s full potential to be realized.

Q: How good has the E&P market been for British operators, and equipment/ service companies, in the last year? What do you expect for the remainder of 2005?

A: Activity in 2004 showed an upturn, particularly in appraisal drilling, where there was an increase of more than 50%, compared with 2003. Although the oil price may have been partly responsible for this, both the Fallow Initiative and our new approach to licensing have played a large part in getting wells drilled. The upturn appears to be continuing, with figures to the end of second-quarter 2005 indicating half-a-dozen more exploration and appraisal wells than for the same period last year. However, we cannot be complacent, and I will be looking to ensure that we continue to have the right conditions to ensure that every promising prospect is drilled and every discovery appraised.

Production of oil and gas is down again so far this year, but we expect it to stabilize and even increase, especially once the large Buzzard field comes onstream toward the end of next year.

British Minister of Energy Malcolm Wicks de-planes from a helicopter during his recent visit to Total’s Elgin/ Franklin oil production platform in the UK North Sea.

 Q: How well are DTI’s licensing policy changes working?

A: The signs are extremely encouraging. We have just seen a record number of bids for blocks in our latest 23rd Offshore Round. Companies have applied for 279 blocks, the most in 30 years!

The last two rounds prior to this, which introduced the “Promote” License – a tenth of the cost of the traditional license – and the “Frontier” License – aimed to promote increased exploration and appraisal activity west of the Shetland Islands – were also very successful. Licensing innovations have provided opportunities for a wider range of companies to invest here. We have attracted record numbers of new entrants, issuing 58 new Promote Licenses last year, with 15 companies as new entrants to the North Sea. Last year, we awarded 97 licenses, the highest number in 10 years. These covered 163 blocks, including 41 in the West of Shetland area, with 26 blocks via new Frontier Licenses.

So, signals are very good for the 23rd Round, and I look forward to making awards later in the year. But, of course, awarding acreage is only the start of a process in which I am determined to make sure that prospects are appraised and taken forward and, crucially, that wells are drilled. Our licensing approach is designed to this end.

Q: Beyond licensing changes, is the UK government doing enough to encourage E&P activity?

A: We are working with industry through PILOT to make sure that no stone is left unturned. The Fallow Initiative is succeeding in getting unworked acreage into the hands of those best placed to exploit it. Industry codes of practice covering the commercial environment and access to infrastructure are ensuring that potential barriers to market access are removed. We are also looking closely at enhancing production from existing brown fields through to stewardship discipline. If we can extend the lives of these fields, then there is the potential for a larger window for nearby satellite developments to utilize the field facilities and linked infrastructure.

Q: Is DTI at all concerned about competition from aggressive Chinese oil companies and service/ supply firms, as they attempt to lock up E&P tracts and production in regions outside Asia (Unocal being a good example)?

A: The UK supplies and service industry is world-class and can be seen winning business in every oil- and gas-producing region of the world. We expect the service/ supply firms of other nations to be just as eager, as we are, to win contracts. We have no fears about competition. It keeps the industry alert and encourages innovation. I fully expect UK companies to increase their international success and win much more business with Chinese operators.

We have a fully competitive licensing regime that ensures the best company wins. I am not at all worried that we will be “locked-up” in the UK.

Q: What other thoughts do you have as you get deeper into your tenure as Energy Minister?

A: Our challenge is to ensure that we make the most of the technology and opportunities available to maximize oil and gas production in the North Sea. The fact that we have recently had the highest number of blocks applied for since the 1970s is a solid vote of confidence from the industry in the potential development of North Sea fields. PILOT has been vital to helping us create the license types and regulatory environment that attract and stimulate activity in the North Sea. The increase in applications from new firms is a clear endorsement of that approach, and it is a vindication that there are significant development opportunities still available for the right firm in the North Sea.

Finally, it is worth mentioning the very professional way in which the UK oil and gas industry goes about its business. I visited the Elgin/ Franklin high-pressure, high-temperature field recently, and was extremely impressed with the management of the platform facilities, particularly with regard to safety. I know that these high standards run across the industry and, to its credit, the industry continues to maintain these while adapting to the many new challenges that our maturing province continues to present.  

THE AUTHOR
	Malcolm Wicks is Minister of State for Energy at the UK Department of Trade and Industry. Previously, he was Minister of State for Pensions (June 2003 to May 2005) and Parliamentary Undersecretary of State for Work (June 2001 to June 2003) at the Department for Work and Pensions, and Parliamentary Undersecretary of State for Lifelong Learning at the Department for Education and Employment (appointed July 1999). Mr Wicks was chairman of the Education Select Committee from 1998 until his appointment as a minister. He has been a Member of Parliament for Croydon North since 1992. Mr Wicks was educated at North West London Polytechnic and the London School of Economics. Between 1974 and 1977, he was a university lecturer. From 1968 to 1974, he was a social policy analyst at the Home Office. He was Director of the Family Policy Studies Centre before entering Parliament. Mr Wicks is married with three children.