The sharp decline in oil prices over the past year has magnified the challenges that companies on the UK Continental Shelf (UKCS) have been grappling with for many years; increasing costs, falling exploration and aging infrastructure, coupled with commercial and legal complexity.
Andy Samuel. Image from OGA.
Sir Ian Wood’s UKCS Maximising Recovery Review concluded that increased stewardship and more collaboration were essential for the industry, giving rise to the swift creation of the Oil and Gas Authority (OGA).
Given the challenging backdrop for our industry, now, more than ever, is the time to create a future of collaboration
We have a real opportunity to identify and remove behavioral barriers, set clearer expectations between organizations involved in the North Sea, learn from positive examples and secure leadership commitment to sustainable cultural change.
One of our first actions was the Call to Action Report, published February 2015, which identified two immediate risks resulting from the fall in oil price.
First, the risk of declining profitability in producing fields leading to the premature decommissioning of critical infrastructure. This has the potential to shut down whole areas of the UKCS, stranding valuable resources. To help avoid this, the OGA is working with infrastructure owners and partners to help find solutions in often challenging commercial situations.
Second, the risk that a lack of confidence could result in the failure to secure critical long-term investment in the basin. The US$2 billion (£1.3 billion) package of measures announced in the 2015 Budget provided a welcome boost to the industry and was well received by investors.
Alongside this it is now essential that the industry redoubles its efforts to create a more competitive cost base and increases efficiency.
With significantly fewer new wells planned in 2015, revitalizing exploration is another key priority. We are moving ahead with a $31.2 million (£20 million) government-funded seismic project, which will acquire new high-quality 2D data from the Rockall and Mid-North Sea High. Operations began mid-July, with three vessels in the field acquiring data over 220,000sq km.
At the same time we’ve moved quickly to establish the OGA. It became an executive agency of the Department of Energy Climate Change (DECC) on 1 April 2015 and is on track to become a government company by summer 2016, subject to the will of Parliament.
The OGA has operational independence from DECC. The OGA’s role is to regulate, influence and promote the UK oil and gas industry in order to maximize economic recovery. The energy bill will give us new regulatory powers, including the ability for us to participate in meetings with operators, have access to data, provide dispute resolution and introduce a range of sanctions, such as improvement notices and fines up to $1.56 million (£1 million). I don’t expect to have to use these sanctions often; my preference is to work closely with industry to encourage collaboration and facilitate action.
Having already appointed a high-caliber leadership team, we will continue to develop the organization in the coming months, increasing our capability but remaining cost-conscious. I’ve set an overall headcount cap of 179 employees in order to avoid ‘mission creep’ and the latest wave of recruitment activity took place this summer.
Making the tripartite approach integral to how we work across the UKCS is the key ingredient in creating a positive future for our oil and gas industry, and I very much welcome the continued commitment of industry and government.
Maintaining a strong and constructive relationship with HM Treasury is critical. Alongside this, Oil and Gas UK and OGA are already working together effectively in a number of areas and I’m keen to build on this.
The OGA will be a catalyst for change but we don’t have all the answers. We all need to lead the change. We all need to help secure the best possible future for our industry. We all need to turn commitment into action.
Andy Samuel, formerly of BG Group, began his role as chief executive of the UK’s newly formed Oil and Gas Authority (OGA) on 1 January this year. The OGA, formed based on the recommendations of the Wood Review, was officially launched in April to instigate a new era of the mature North Sea focusing on maximizing recovery.