OGUK: Change needed to address UK exploration crisis

Malcolm Webb, chief executive officer of trade group Oil & Gas UK, said the UK has an exploration crisis and that change is urgently needed to address it.

“We are just not drilling enough wells in UK offshore waters and those that we are drilling are not finding enough oil and gas,” he said.

Webb said the “worrying” trend started in 2011 with a 50% drop in the number of exploration wells drilled.

Meanwhile, production from existing fields has fallen significantly and the total number of exploration wells dropped to just 15 in 2013, according to the UK Department of Energy and Climate Change (DECC). By contrast, 44 exploratory wells were started in 2008.

Webb said trade group members cite drilling rig availability and the ability of small companies to secure equity capital as major hurdles.

“It is clear that we now face a crisis” that demands urgent concerted action by DECC, Treasury, and the industry if the UK is to maximize economic recovery of offshore oil and gas resources and sustain future production, he said (OGJ Online, Dec. 4, 2013).

Both the Wood Mackenzie annual review of UK upstream oil and gas and the DECC figures clearly illustrate the “parlous state” of exploration, Webb said.

“We are simply not putting enough reserves into the hopper for future development,” he said. “Unless we do something about exploration now, we face a risk of a collapse in capital spend in a few years’ time and hence lower future production.”

Webb said there is a paradox in that the UK continues to record annual levels of capital investment at more than £13 billion. “We now have a two-speed North Sea. On the one hand, we have seen tremendously strong development activity from a small number of large, highly robust projects, plus a greater number of smaller ones, only made commercial by targeted reductions in unsustainably high tax rates.”

Webb said Sir Ian Wood provided “the right prescription” in his November interim report to the Secretary of State for Energy. He proposes a new and strongly resourced oil and gas regulator working in cooperation with the Treasury and the industry towards the shared goal of maximizing economic recovery of the substantial remaining UK oil and gas resources.

Webb said OGUK looks forward to publication of Wood’s final report and to working together as a matter of urgency to implement its recommendations, including  the “tripartite” approach. “There are substantial volumes of oil and gas still to recover from the UK continental shelf but action must be taken now to avoid billions of barrels being left in the ground.”

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