Technology from Europe: United Kingdom

Officials will do all they can to encourage E&P, says UK energy chief

Question: How do you see DTI’s role within the UK upstream?

Answer: Government is determined to do all it can to maximize economic recovery of the UK’s oil and gas resources and maintain strong levels of investment and activity in the North Sea. Up until the end of 2006, industry had produced around 37 billion boe in the UK, with up to 20 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. Our new licensing is also backing small companies with big ideas. Last year, Alistair Darling, the Secretary of State, met Reach Petroleum, one of our new “pioneers,” an Aberdeen-based couple, who set up their own oil company and have struck oil.

Government’s role is to set a stable but adaptable regulatory framework that encourages companies, new and old, large and small, to invest in the UK Continental Shelf (UKCS). We are working very closely with the UK industry through PILOT, the oil and gas forum, 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.

Lord Truscott

Q: Assuming that high oil and gas prices continue, what level of activity do you expect for 2007?

A: I think that the position remains strong. There were 74 exploration and appraisal wells drilled last year, the second highest total since 1998. The exploration success rate was 38%, and the net discovery total was 500 million boe. We know that 89 wells are planned for 2007, of which 80 have rig slots allocated.

Q: How would you characterize the success level of the 24th Seaward Licensing Round?

A: The strong levels of interest in North Sea acreage continue and, for the 24th Round, we were able to unveil continuing record numbers of oil and gas licenses. There were 150 exploration and production licenses issued to 104 companies, covering 246 blocks. This award matches the last round’s record-breaking result, and it shows that by having a flexible, responsive licensing regime, we continue to maximixe the North Sea’s potential.

The oil and gas sector is one of the UK’s most important industries, and our role in awarding these licenses is to balance continued development of the North Sea while respecting and minimizing the impact on our environment. Four blocks (in the Moray Firth and Cardigan Bay), which required further environmental assessment, were excluded from the initial awards. We made this decision, so that we can continue to capitalize on this record investment, while allowing us to properly consider the issues surrounding these blocks.

Q: How much extra business have British service/supply firms gained outside the UK because of high prices?

A: The UK industry continues to play a leading role in many of the world’s oil and gas markets. But this isn’t purely on the basis of oil and gas prices. Rather, it reflects the UK industry’s world-class capability, experience and technology in oil, gas and petrochemicals. British companies are winning more business than ever, and are also expanding their involvement with industries in other countries through various forms of joint ventures, partnerships and alliances.

Q: How would you assess the success level of DTI’s licensing policy changes?

A: Very successful. Enhancements to our licensing system have included new “promote” licenses at a tenth of the cost of a traditional license, to encourage smaller players to invest in the North Sea, and the “frontier” license to stimulate more interest and exploration West of Shetland. We have seen real success, attracting unprecedented interest and record numbers of applicants. We have also seen old acreage taken up as part of the Fallow Initiative, which has helped to make unworked acreage available to those better placed to exploit it.

Q: Do you think that the UK is doing all it can to encourage E&P activity?

A: We are working closely with industry through PILOT, the oil and gas task force, on a number of fronts to encourage more UK exploration and appraisal. The Fallow Initiative is successfully making unworked acreage available for others to exploit, and our licensing innovations are encouraging unprecedented levels of interest, from a range of players.

We are also working to maximize recovery from existing brown fields, which, in turn, should help to extend infrastructure life and promote recovery from smaller accumulations that could not be economically realized without that infrastructure being nearby and accessible. For its part, the industry is working to enhance the commercial climate, through Codes of Practice that should ensure that North Sea deals are carried out as smoothly as possible, and that third parties are able to access infrastructure on fair, reasonable terms.

But we can’t do anything without the right people. We already have a fantastic range of talent within the industry—geologists, geophysicists, technicians, engineers and financiers, to name but a few. However, there are skills shortages, and it is vital for the future of the industry that these specialties are not lost. I have, therefore, asked PILOT to look at how the industry can respond to this challenge.

Q: What is the range of projects in which UK firms can demonstrate their technical offerings/expertise?

A: Over the last 40 years, exploration and development of the hostile and deep waters of the North Sea have allowed the UK’s extensive oil and gas industry to create an unequalled range of products, services and expertise that now play a leading role in offshore and onshore hydrocarbon developments worldwide.

UK firms have developed a vast range of subsea technology, novel offshore platform and floating production systems, compelling software, and environmental management and control systems, which are now utilized globally. Energy operators of all sizes exploit UK expertise for reservoir analysis and modeling, innovative downhole tools and techniques for drilling multilateral wells, e-enabled reservoir management systems, advanced communications, process control and measurement and support services.

With this range of capability, experience and technology, UK operators, and our service/supply chain, are active in nearly every international market.

Q: Is the Blair administration concerned about places of geopolitical instability affecting E&P activity?

A: We believe that governments have a responsibility to steer the international energy system onto a more secure and sustainable path. And in doing so, it is important not to take particular events in isolation. We are working to promote effective markets in the energy sector worldwide, through clear, stable, transparent and non-discriminatory rules for investment. This will enable skills, experience and technology to be deployed around the world to best effect, to maximize efficient use of finite natural resources for the benefit of producer and consumer countries, alike.

At the same time, we are encouraging the development and deployment of low-carbon energy technologies to reduce emissions and reduce pressure on tight fossil fuel markets.