The continued low oil price has led to some 5500 job losses in the UK North Sea since late 2014, according to new figures released by the Oil and Gas Authority today.
The organization, a new independent regulatory body, set up earlier this year in attempt to revive the industry and maximize economic recovery for the North Sea, says the difficult conditions the industry is facing “underline the need for structural change in our industry.” It says: “A transformation in the way business is done is required if the sector is to become more resilient and competitive in a world of sustained lower oil prices.”
But, it also says that the current environment has also, “over the past six months, galvanized collaboration and action from industry, government and the OGA.”
The OGA was set up in the wake of the Wood Review, which was commissioned to assess the state of the high-cost, low efficiency industry in 2013-14, even before the oil price fell, due to plummeting production rates and record low exploration.
When the OGA released its initial report, A Call to Action, in February 2015, oil prices were at US$60/bbl. Today they are below $50/bbl, says CEO Andy Samuel, “creating an even more challenging economic environment for companies involved on the UK Continental Shelf, where unit operating costs have become and remain higher than many other basins around the world.”
Today’s report, A Call to Action, Six Months on, updates on progress made since then. Samuel (pictured left), who became CEO in January this year, before the body was officially made an executive agency on 1 April, says: “We should be in no doubt about the scale of the challenge ahead, but it is important that we recognize the progress that has been made over the past six months and remain focused on the things that matter most as we look forward.”
The initial report outlined two key risks facing the industry; the loss of critical infrastructure, if fields are shut down prematurely, which could shut down whole areas of the UKCS, and that confidence in the future potential on the UKCS will continue to decline, resulting in critical long-term investment not being committed.
Today’s report says cultures and behaviors still need to change: “We all must take the opportunity to remove behavioral barriers, set clearer expectations between organizations involved in the North Sea, learn from positive examples and secure leadership commitment to sustainable cultural change," it says.
“The Wood Review highlighted frustration and concern expressed by companies of all sizes on the negative impact of overzealous legal and commercial behavior. While some examples of good practice exist, progress has been limited and a more fundamental shift is required. The OGA is now initiating work with industry representative to define clear expectations and standards, but companies must lead this change.”
The report says work is being done to protect critical infrastructure, with commercial discussions ongoing and regional development plans being drawn up. Asset stewardship is under close scrutiny, with companies due to be scored on their performance in 2016 and enhanced oil recovery techniques being assessed. An Efficiency Task Force has also been launched to address production efficiency in the basin, which had fallen from an 80% average to 60%.
To improve exploration, the 21st Century Exploration Roadmap initiative is underway, with a post-well analysis study shared with industry and an assessment of potential new and neglected plays. Operations also started mid-July, on £20 million of new 2D seismic data acquisition, funded by government, using three vessels, across the Rockall Trough and mid-North Sea High area. The work us being carried out by WesternGeco using the vessels Vespucci, Tasman and Regent. Data is due to be available early 2016.
The 2016, 29th Offshore Licensing Round will also primarily target under-explored frontier blocks, says the report, leveraging the new seismic data. The 2017 round will then focus on mature areas of the UKCS.
According to the report, the OGA, which will be funded by an industrial levy, now has a full leadership team in place, as at July, with further staff being drafted in, but a 179 head count limit, to help avoid “mission creep.” The Energy Bill, introduced to the House of Lords in July, will give the body new powers, including the ability to participate in meetings with operators, have access to data and provide dispute resolution and issue fines up to £1 million.
A draft Maximizing Economic Recovery (MER) UK Strategy has been through consultation and is due to go through further consultation this Autumn before being officially adopted as statute under the Infrastructure Act 2015 in Spring 2016.
The OGA plans to publish a five-year corporate plan at the end of 2015, setting out its priorities and plans to deliver sector strategies.
The report concludes: “Irrespective of the oil price, the UK offshore oil and gas industry needs to change. While the headwinds are strong, the expertise, imagination and tenacity of our industry and the people it employs are more than capable of rising to this challenge. The OGA is urgently working with industry and government to be a catalyst for this change and now is the time for everyone to demonstrate leadership.”
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