In the oil&gas industry, you cannot not begin by trying to look at the global picture, according to Sir Ian Wood.
“Setting aside the last couple of years, generally, the view is that we’re into a period of energy shortage as economies like China and India especially grow,” says the Wood Group’s chairman.
“I don’t think there’s any doubt that any prices will reach pretty high levels … certainly, levels that will sustain pretty significant exploration and production spend per annum.”
However, Sir Ian, who highlighted the North Sea at the 45th anniversary celebration of Aberdeen Business School on April 30, suggests that gas is a bit of an unknown, with the impact of LNG not yet fully understood, though it has completely altered the gas market. US shale gas is already having an impact, too.
Then there is the issue of the environment/climate change and where hydrocarbons fit into that future. That presents major challenges, yet also offers big opportunities including “a pretty healthy market” for carbon capture, cleaner fuels and so forth.
Zooming in on the North Sea, and the UK Continental Shelf in particular, Sir Ian still sees a significant future.
“It’s clearly mature, but oil&gas plays can be mature for a long time. The US Gulf of Mexico has rediscovered itself, and yet, in the early-1990s, was being called the “Dead Sea”, and three or four years ago, people in the US had no real concept of shale gas onshore.
“Mature areas are hard to assess. At the moment, with the knowledge we have, it looks like the parts of the North Sea that we’ve largely focused on until now are shifting to smaller reservoirs. On the other hand, West of Shetland is probably a bit better than people think it is going to be. But it is, as yet, little known, and the lack of infrastructure is an issue.
“That’s why the Government’s announcement regarding Laggan-Tormore, which appears to incentivise Total to develop infrastructure beyond its own direct requirements, is great.
“Whether they’re going far enough is another matter, but it is Government beginning to indicate that they understand the challenges of maturity; not just the deal that they get out of it, but actually thinking wider, such as how to help access more reserves. I think that’s quite a helpful sign.
“There are signs at last that the UK Treasury is beginning to understand the concept of maximising recovery as opposed to maximising their income over the next two or three years. That’s a very significant difference.
“I’m not saying that will dominate their thinking, but I think there’s a better chance that, as they develop their thinking, they will start keeping an eye on 25billion barrels over ‘X’ number of years, as well as ‘are we still going to get our £8billion, £10billion of oil taxation per annum?’.
“The North Sea is effectively all to be played for, and by that, I mean if we get it right … we being Government and industry … and plan towards maximising recovery, then I think we’ll get quite a long way towards the 25billion barrels.”
Sir Ian warns that if we, the UK, don’t – if we make the wrong steps – and he is assuming oil prices are going to remain pretty healthy, then he fears we’ll fall way short of that.
“We’re almost back to where (North Sea steering group) PILOT was 10 years ago. It’s a chance to have a PILOT Mk II and for it to sit down as the board of UK Oil & Gas Ltd.
“You take your hat off when you go into the room, sit down and say, ‘Our responsibility now is to maximise this opportunity for the UK for the next 30 years; what are the key issues; what are the key steps, how do we incentivise sufficient exploration – low and especially high-risk – and so forth?’. There are 10 main questions that have to be asked.
“This is a sophisticated bunch of guys capable of getting their heads around the challenge and coming up with a plan.
“But here’s the tricky bit. They’ve come up with UK plc’s plan, but then each has to say, ‘I have to go out of the room and put my other hat on’.
“But at least we’re then all looking at what’s the ideal best. We’re not all going to agree to it as we all have different interests. But at least then we’ve all come through a process of actually agreeing, ‘this is what UK plc needs’.”
Sir Ian suggests that at least gives the sector a much better basis on which to get a good plan laid out. He also warns that the sector won’t achieve the plan because some people will say they’re not prepared to do that.
But maybe the Mk II plan will give someone more teeth – more proactive teeth – to make things happen and try to maximise recovery.
He agrees that upstream oil&gas is among the very few industries in the UK that behaves in anything resembling a cohesive manner.
“That needs to be used … not abused,” says Sir Ian.
“That’s why PILOT is so important because it is UK Oil & Gas plc and the Government in some kind of reasonable combination trying to work out a good long-term plan for the sector. What people fail to understand is that the oil&gas industry has had a greater impact on the UK economy than any industry of the last 40 years; maybe apart from banking. Now there’s a thought.”
