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UK to review North Sea activities

17 June 2013

For the first time in more than 20 years, the UK government is launching a review of the country's offshore oil and gas industry to ensure that the sector maintains momentum at a time of economic stagnation. The interim conclusions from the review will be published in the Autumn and the final report and recommendations in early 2014.

The review will focus on areas such as the licensing regime, extending the life of infrastructure, production efficiency, maximising the use of enhanced oil recovery techniques and better collaboration across industry, but will not look at revising the tax regime.

"The values involved in UK oil and gas are so large that even modest increases in key production metrics over time will deliver significant economic benefits," said Ian Wood, former chief executive and chairman of global energy services group Wood Group PLC, who will lead the review.

The review highlights the importance to the UK economy of its offshore oil and gas industry, which supports 440,000 jobs and in 2011-2012 paid 11.2 billion pounds ($17.42 billion) in direct taxes, or almost a quarter of all corporation taxes received by the treasury.

Last year's shutdowns at several key oil and gas fields were a major reason for the contraction of economic output in the last quarter of the year, according to the Office for National Statistics.

A raft of recent tax incentives have helped spur record levels of investment in the UK continental shelf following years of decline in investment and production. This year investment is expected to reach £14 billion, an all-time high, compared with £11.4 billion in 2012.

Production is forecast to rise to 2 million barrels of oil equivalent a day by 2017 from around 1.5 million boe/day expected for this year. UK continental shelf peak production was in 1999 and 2000 when 4 million boe/day was extracted. 

Issues include ageing infrastructure, which has in large part contributed to the decline in production efficiency to 60% from 80% a decade ago, according to Malcolm Webb, the head of industry body Oil & Gas UK. There is also a more conservative operational approach on the UK continental shelf following the 2010 Deepwater Horizon disaster in the Gulf of Mexico.

Another challenge is enhancing the oil recovery from a field,  Currently, UK oil fields typically yield just under 50%, Webb says, whereas it could rise to 70% depending on geology, technology and the oil price.

Secretary of State for Energy Edward Davey said:

“Although investment levels are rising strongly, the UKCS is one of the most mature basins in the world and therefore faces unprecedented challenges. Our offshore infrastructure is getting older, and we are seeing a decline in the rate of exploration and in the amount of oil and gas that is being recovered.

“All these issues need to be addressed if we are to stimulate innovation in this sector and see maximum economic benefit for the UK in the decades ahead. Sir Ian is a highly respected figure in the industry and his leadership will bring firepower and credibility to this much needed work”.

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