Easy oil is gone. North Sea industry needs to adapt to new reality

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.

The report, which gauges the oil and gas industry’s reaction to Sir Ian Wood’s Maximising 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:

– Supported a strong new regulator which can demonstrate focus and influence;

– Wanted HM Treasury to outline a stable, simple and internationally competitive fiscal regime which reflects the diverse profile of the UK Continental Shelf (UKCS);

– Thought closer collaboration between companies would help drive efficiency and cut costs related to extraction, while tax incentives and possibly different ownership models could encourage the sharing of infrastructure.

Derek Henderson, senior partner in Deloitte’s Aberdeen office, said: “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. 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 $1.3 trillion worth of oil and gas which potentially remains.

Henderson commented: “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. 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.”

Regulator “with teeth”

According to Deloitte, 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.

Geoff Gibbons, oil and gas consulting partner at Deloitte, said: “The industry is very supportive of the new regulator and the Wood Review as a whole. 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 maximise 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.

“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 maximising volumes, economic extraction and eventually effective decommissioning.”

Image: Hurricane Energy

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