At the end of last month, I attended the annual reception of the Westminster All Party Parliamentary Group (APG) for the UK Oil and Gas Industry, hosted by Dame Anne Begg – MP for Aberdeen South and Chair of the APG. I would like to share the thoughts I outlined in the short talk I gave that evening.
First I reflected that the APG provides us with an incredibly useful parliamentary mirror in which we in the industry can “see ourselves as others see us” and while we may not always appreciate what we see in that mirror, it in no way reduces the worth of the exercise.
The media – including this influential publication – can also provide us with an important insight into how our industry is viewed by others – sometimes appreciated and at other times, not.
What is important is that all of us in the oil and gas industry continue to engage and openly discuss the matters of the moment relating to our business with MPs, unions, academia and the Civil Service and also with the general public through conversations in and through the modern media in all its forms.
Failure to communicate is a recipe for serious misunderstandings on all sides, and with that there comes the real risk of wrong conclusions being arrived at and hence wrong actions being undertaken.
At the reception, I also noted that the Wood Mackenzie annual review of UK upstream oil and gas and the recently released DECC figures both clearly illustrate the parlous state of the oil and gas exploration effort on the UKCS (Hannon Westwood made this abundantly clear in January’s Energy).
We are just not drilling enough wells and not finding enough oil and gas. This worrying trend started in 2011 when, following the tax hike in the 2011 Budget, we witnessed a 50% drop in the number of exploration wells drilled, a low point from which we have since failed to recover.
With rates of tax ranging 62 to 81%, maybe this is unsurprising. But whatever the reason, it is certainly very disturbing for all those of us who want to see a long and prosperous future for our industry.
Regretfully, the problems don’t stop there. As we have also repeatedly pointed out, all is not well in the existing production base. We have seen costs rocket and production efficiency plummet over the last decade.
So we now clearly find ourselves facing the paradox of a two speed North Sea.
On the one hand we have record capital investment – largely due to a swathe of new and typically smaller developments enabled by the Treasury’s list of new field allowances.
However, on the other hand, the day-to-day business and very critically the business of bringing new reserves into the frame to be developed in a few years’ time, is not in good shape.
I can assure you these are not matters which Oil & Gas UK and its members are taking lightly and indeed we have been working hard on them in PILOT, the joint programme involving DECC and the UK oil and gas industry chaired by energy secretary Ed Davey, for some time now.
However, it is now clear to us that PILOT cannot provide all the answers and an additional more engaged and much more dynamic approach must be adopted.
But how should we go about that?
Oil & Gas UK believes the answer is to be found in Sir Ian Wood’s review of how the UK can maximise economic recovery from the offshore areas.
It is clear from Sir Ian’s Report that no one of us on our own can resolve the issues facing our industry. It needs a substantial collaborative effort.
Most critically we need a better resourced, well led and active regulator facilitating a tripartite approach to this problem in which each of the Department of Energy, the Treasury and all parts of the industry are all fully committed.
If properly and speedily implemented, Sir Ian’s recommendations provide the best way forward from here to capture all of the very significant quantities of oil and gas still remaining on UKCS. To do less would be a national scandal.
Malcolm Webb is CEO of Oil & Gas UK
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