Oil and gas sector changes could yield billions more barrels

11 November 2013
By Edd Gent
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The current oil and gas regulator is

The current oil and gas regulator is "no longer adequate" according to the report

Changes to the way the oil and gas sector operates could produce at least three to four billion additional barrels of oil over the next 20 years, a report claims.

Implementing the recommendations has the potential to produce "at least" the equivalent of an extra three to four billion barrels of oil from the UKCS, the report claims. This would be worth approximately £20bn to the UK economy, the report says.

It highlights the "substantial contribution" the oil and gas industry makes to the economy, employment and energy security, with the sector said to support 450,000 jobs across the UK both directly and indirectly.

The equivalent of 41 billion barrels of oil have already been produced from the UKCS, with an estimated equivalent of 12 to 24 billion barrels still to come.

"Ultimate recovery is in a large part dependent on how well the UK manages the development of remaining reserves," the report insists.

The sector faces a number of challenges in the future, with any newly discovered oil and gas fields generally smaller and harder to exploit, while some of the operating equipment is more than 30 years old and is now at or beyond the end of its original intended lifespan.

Production has fallen by 38 per cent in the last three years, resulting in £6bn less in tax receipts for the Treasury, while a decline in exploration led to the equivalent of less than 50 million barrels of oil being discovered last year.

"It is essential for the future growth and prosperity of the UK that the recovery from both existing fields and new discoveries is maximised," the report says. “To achieve this goal, there now needs to be a radical step up in how government exercises stewardship of the UKCS."

There is a "lack of focus on maximising economic recovery for the UK" because operators have pursued individual commercial objections in isolation, with only a limited shared commitment to maximising recovery across parts of the UKCS, according to the report.

It also claims that the current regulator, part of the UK Government's Department of Energy and Climate Change, is "significantly under-resourced and far too thinly spread to respond effectively to many of the demands of managing an increasingly complex business and operating environment".

The creation of a new arms-length regulatory body is recommended. This should, as a priority, work with the industry to develop strategies for exploration, technology including enhanced oil recovery and carbon capture and storage, and decommissioning.

The UK Government and the industry have also been urged to develop and commit to a strategy of maximising economic recovery from the UKCS.

"The UKCS should be an attractive destination for investment, with significant opportunities still to be developed," the report says.

But "changes need to be made urgently to meet the Government's objective of maximising economic recovery from the UKCS, ensure the long-term health of the UKCS and reverse recent declines in performance".

All future licences for oil and gas developments should include a clause "making clear that in all areas of development and operation, the licence holder must act in such a way that would be consistent with the principle of maximising economic recovery", according to the report.

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