OE13: Looking forward to the next 50 years—risks and costs

“The future is about volume and value”, George Osborne, the UK’s Chancellor of the Exchequer, told yesterday’s opening plenary session at SPE Offshore Europe.

Osborne said government and industry have a shared interest in maximizing returns from the North Sea. Collaboration improves economic viability and economies of scale, he said.

However, the high costs and risks of operating in the basin were also high on the agenda.

The risks were highlighted by a moment’s silence, at the start of the plenary, led by Webb, held in reflection of the four offshore workers killed in Friday 23’s helicopter crash, off Shetland, as well as the survivors, families, and rescue personnel involved.

The costs were highlighted by Wood Group chief executive Bob Keiller, who suggested an industry-wide need to re-baseline salaries, driven by a shortage of skilled staff, and BG Group chairman Andrew Gould.

Gould said the North Sea had always been a high-cost basin and a step-change was needed to reduce operating costs and remain competitive, particularly in estimating reserves and enhancing ultimate recovery.

He suggested using automation technology to reduce staff offshore, with enhanced monitoring and remote management of production platforms, and more shared infrastructure, such as a subsea power grid.

North Sea investment will reach a record £13.5 billion, this fiscal year, said Webb. However, he stressed the need for stable policy and fiscal predictability in long-term planning for continued investment.

Osborne cited a tranche of new tax reliefs for North Sea operators, recently introduced by the UK Government—including extending small field allowances, shallow-water gas and brownfield allowances, and a new scheme to underwrite decommissioning costs.

The chancellor was due to go on to visit Talisman-Sinopec Energy UK’s Montrose platform, in the North Sea, which is the subject of a £1.6 billion investment, including a new bridge-linked platform, that will extend its life from a former decommissioning date of 2017 to 2030.

Also speaking during yesterday’s plenary was Sam Laidlaw, chief executive of Centrica. Discussing major areas of change in the energy markets, affected by global economics and LNG, he said oil and gas prices were de-linked. Although they have similar cost structures, they offer different value streams, he said.

Laidlaw noted an overall decline in exploration, making it doubly important that fields are not prematurely abandoned and pipelines are kept accessible for small field developments.

Bob Keiller, chief executive of Wood Group, ended the session with a contractor’s view of the future supply chain. He said successful companies stress personal and process safety, are good corporate citizens, remain ethical in all transactions, and develop enduring and mutually beneficial client relationships.