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Collaboration with government and industry key to future success of UK oil and gas, says incoming regulator


Large oil and gas companies working on the UK Continental Shelf (UKCS) will be required to submit 'stewardship' plans to the new industry regulator, while aiming for a 30-40% improvement in operating efficiency, according to that regulator's first report.

Dr Andy Samuel, incoming chief executive of the new Oil and Gas Authority (OGA), was asked by the government in January to urgently identify "practical" measures that could be taken to offset the recent dramatic falls in global oil prices. His early report identified the biggest risks facing the industry, and underlined the regulator's commitment to close collaboration with government and industry to maximise the North Sea's remaining resources.

"Significant hydrocarbon resources and economic value are yet to be delivered from the UK North Sea, but to unlock this potential we must create a more competitive and efficient operating environment, where costs are effectively managed and companies have the confidence to invest today and tomorrow," he said.

"I am working at pace to establish the OGA as a strong and effective regulator, which can be a catalyst for change and a facilitator of action ... But the OGA cannot achieve these outcomes in isolation. I have highlighted the key risks facing the industry, priority actions required and my expectations on delivery. Now industry, government and the OGA must build on the positive tripartite relationship, which has developed since the publication of the Wood Review to demonstrate collective leadership and deliver solutions," he said.

The OGA will be established as an executive agency of the government's Department of Energy and Climate Change (DECC) on 1 April 2015, and is expected to become a government-owned company next year. Set up on the recommendation of industry expert Sir Ian Wood in his Maximising Economic Recovery (MER) review last year, the OGA will be responsible for implementing the new 'MER UK' strategy in conjunction with government and industry.

According to Samuel's report, the UK oil and gas industry faces two particular risks that must be urgently dealt with in order to protect current and encourage future investment. Rising costs and falling profits could reduce the profitability of current fields to an extent insufficient to attract continued investment, which could ultimately lead to the premature decommissioning of viable fields. Additionally, a loss of confidence in the future potential of the UKCS could result in the UK failing to secure the long-term investment needed to maximise future recovery.

To address the first of these risks, the OGA intends to work urgently with operating companies on steps to protect critical infrastructure, preceded by "rigorous economic assessments" of the main production hubs. Operating companies will be required to prepare asset improvement plans, targeting a 30-40% improvement in operating efficiency; while the top 20 production operators by volume will also have to submit "stewardship improvement plans" to the OGA by April. However, the OGA has recommended that existing apprenticeship, trainee and graduate schemes are retained, in order to keep efficiency and cost reduction measures sustainable.

To encourage future development, the OGA will continue to support the Treasury's planned improvements to the way in which oil and gas profits are taxed. Amongst the most immediate measures are the expected introduction of a basin-wide investment allowance in next month's Budget following industry consultation at the start of this year; and potential further reductions to the supplementary charge on oil and gas profits when this can be done "in an affordable way", according to the document.

The OGA will also work with operating companies to "revitalise exploration activity", according to the report. This will include a programme of seismic acquisition in frontier and underexplored areas of the UKCS, the creation of a single forum to encourage innovation and efficiency when decommissioning and the provision of more accurate and reliable data on the region both internally to the OGA and externally to industry, it said.

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