U.K. looks to squeeze out more North Sea oil

A U.K. Department of Trade and Industry (DTI) task force aims to enable the development of 5.6 billion bbl of additional oil during the next 5 years from U.K. North Sea marginal discoveries.

The initiative was announced by Stephen Byers, secretary of state for trade and industry, who told the Offshore Europe conference in Aberdeen on Sept. 7 that the program is intended to maintain U.K. oil production above 3 million b/d and thereby prolong self-sufficiency.

Byers told delegates the initiative would be driven by a newly formed organization, Leading Oil & Gas Industry Competitiveness (Logic), which is intended to promote best practices throughout the oil and gas industry supply chain.

"The task force target for the (U.K.) industry," said Byers, "of increasing its share of the world's market by 50% means increasing exports by £2 billion/year ($3.2 billion/year) by 2005. This is challenging but achievable. The task force believes that its proposals have the potential to support up to 100,000 more jobs in 2010 than there would be if no action taken."

The DTI initiative follows a study, conducted in March 1999 by U.K. offshore operators, that predicted investment on the U.K. continental shelf would fall by more than 50%/year to £2 billion/year by 2002. The operators showed that the current average cost of finding and producing a barrel of oil in the U.K. North Sea is at least $13/bbl, which compares with $9/bbl for the Gulf of Mexico and $4/bbl in Malaysia.

The DTI said that, while the U.K. is a comparatively high-cost exploration and production province, this is mitigated to some extent by a more favorable fiscal regime for new fields, political stability, proximity to markets, and a responsive regulatory environment.

The task force said its vision for 2010 is "the U.K. oil and gas industry and government working in partnership to deliver quicker, smarter, and sustainable energy solutions for the new century."

The Logic initiative replaces the industry's earlier Cost Reduction in the New Era (Crine) program, which saw U.K. North Sea field development costs reduced by more than 20% during the 1990s.

Best practices

Kerst Troost, finance and commercial director of Shell U.K. Exploration & Production and chairman of Logic, said other sectors, such as the U.K. automotive industry, have improved their competitiveness through improved management of supply chains and less-adversarial contracting arrangements.

"The main issue for us," said Troost, "is the need to spread these practices more quickly, more widely, and more consistently throughout our industry. The industry needs to understand the potential benefits and to be provided with practical help to implement the required changes."

New U.K. Energy Minister Helen Liddell told reporters at the conference that the catalyst for Logic was the 1997 oil price collapse, which highlighted the U.K.'s vulnerability when faced with a $10/bbl oil price and $13/bbl costs.

"The recent recovery in price helps," said Liddell, "but it does not take the main issues away. The world has changed. No longer are U.K. projects measured against other U.K. projects; U.K. projects are now compared with projects around the world."

The U.K. Offshore Operators Association (Ukooa) welcomed the Logic initiative and said the fruit of the task force's work should be a more certain future for the U.K. oil and gas industry.

James May, Ukooa director general, said, "There is potentially about as much oil and gas remaining on the U.K. continental shelf as has been recovered to date-enough in theory to sustain production well into the next century. However, most of this potential lies in small fields and complex reservoirs, where development costs will be high and operations difficult. The offshore oil and gas industry's long-term future will therefore depend on its ability to compete successfully for investment in a world market where lower costs exist."