Companies operating in the North Sea require a cultural shift to make the most of its potential, according to a new report from Deloitte, the business advisory firm.
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Image from Statoil. |
The report, which gauges the oil and gas industry’s reaction to Sir Ian Wood’s Maximizing Recovery Review, calls on the new regulator – the Oil and Gas Authority (OGA), the government and companies operating in the North Sea to adapt to a new reality in the basin.
Overall, the research found respondents:
“The UK’s oil and gas industry is going through a serious period of transition; its three major stakeholder groups need to change significantly and adapt quickly,” says Derek Henderson, senior partner in Deloitte’s Aberdeen office. “There must be more collaboration both between and within the groups, with companies working together to make extraction more economically viable and increased coordination between departments at Whitehall.”
The report also found that drilling activity on the UKCS needs to double to more than 90 wells per year over the next two decades to make the most of the estimated US$1.3 trillion worth of oil and gas which potentially remains, based on the successful extraction of the estimated remaining 15 billion recoverable boe and assumes a $90 per barrel oil price.
“Only about a third of the known recoverable resources in the UKCS are left. The ‘easy oil’ days are gone and we need a fiscal regime that is more reflective of the current state of the basin,” says Henderson. “Companies are looking for a tax system which is simple to navigate, stable over the longer-term, incentivises investment and is competitive by international standards. Making the right changes could mean billions of pounds of difference to the UKCS, and simultaneously increase the taxable income as more oil and gas is recovered.”
Crucial to the changes will be the new regulator “with teeth”; the OGA, announced following the Wood Review. Businesses emphasised the need for the regulator to have the ability to encourage, incentivise, or enforce new ways of working.
“The industry is very supportive of the new regulator and the Wood Review as a whole,” says Geoff Gibbons, Deloitte oil and gas consulting partner. “However, those leading the OGA must have the powers required to lead companies and the UK government in the right direction and make sure the utmost is done to maximize the resources left in the North Sea. Nevertheless, industry cannot afford to sit and wait for the regulator to drive change. Respondents were quick to point out that many of the measures required have been known for some time and there is strong scepticism that real change will be delivered.”
Gibbons went on to say that if the industry can achieve all of the steps outlined by the Wood Review in time, this shift could help make the most of the remaining resource on the UKCS through maximizing volumes, economic extraction and eventually effective decommissioning.
In addition to Deloitte’s report, Aberdeen & Grampian Chamber of Commerce's (AGCC) released its own report that says for the first time since 2008, more operators and contractors are pessimistic about their UKCS activity than are optimistic. Almost two-thirds of all firms surveyed (62%) believe the government’s top priority with regard to the sector should be a revision to the fiscal regime to ensure it encourages exploration and extraction.
Read more:
North Sea confidence at 6-year low
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