UK prime minister, oil leaders discuss challenges

UK Prime Minister Gordon Brown and his chancellor Alastair Darling have met with oil industry leaders in Aberdeen to discuss methods of controlling soaring fuel prices.

May 28th, 2008

Uchenna Izundu
International Editor

LONDON, May 28 -- UK Prime Minister Gordon Brown and his chancellor Alastair Darling have met with oil industry leaders in Aberdeen to discuss methods of controlling soaring fuel prices.

Brown warned that high oil prices were here to stay because global demand was outstripping supply over the long term. Members of the British legislature and the general public have called for policy changes on road and fuel taxes to help families and to thwart protests by the haulage industry that have disrupted traffic and increased pressure on Brown to address the problem.

The oil group focused on how investment decisions are made for projects on the UK continental shelf and analyzed various measures for advancing oil and gas developments and enhancing recovery from existing fields.

Oil and gas production in 2007 was 2.8 million boe/d, down from production of 4.2 million boe/d in 2001. The UK is estimated to have as much as 25 billion boe left to produce.

Malcolm Webb, chief executive of offshore trade association Oil & Gas UK, which met with Brown and Darling, said, "This was a highly constructive engagement, and the proposals discussed could have a significant impact on the near-term production. We look forward to continuing our discussions with government to develop these ideas."

But the subsea operators also called on Brown to acknowledge their contribution to developing and producing the country's resources. David Pridden, chief executive of Subsea UK, said, "With almost half of North Sea production now coming from subsea wells, the subsea sector has a significant role to play in more efficiently extracting the remaining hydrocarbons in the UKCS."

Pridden said more government support was needed for the offshore industry, which he said could add "a further 10-15%" of reserves from the UKCS in the next few years, "i.e., a further 2-3 billion boe." Last year the UK subsea industry generated £4.3 billion in revenues.

Brown wants the issue of high oil prices on the agenda for the Group of Eight summit in Japan. He's also pressing the Organization of Petroleum Exporting Countries to increase its production.

The Department for Business, Enterprise, and Regulatory Reform (BERR), which grants licenses for the UK North Sea, has unveiled changes in its licensing regime to increase production. Secretary of State John Hutton said another 20,000 b/d of peak oil could be produced from 30 fields that would be created by carving them out from unprofitable areas of some existing fields.

"The change will mean production from these new fields would be unaffected by Petroleum Revenue Tax," BERR said.

BERR received 193 applications covering 277 blocks in its 25th Offshore Licensing Round, the highest number since 1974. The round closed on May 22. The government has also just launched 97 new licenses—a record number—through the 13th Onshore Round.

A spokeswoman from OGUK told OGJ that the association has been talking to the Treasury for the past year seeking reform of the tax regime to attract investment. Talks are expected to close by the end of June. "We have been looking at targeted incentives to promote the West of Shetlands, for example, which is remote and technically challenging. Right now the group can't develop it because it isn't commercially viable," the spokeswoman said.

Contact Uchenna Izundu at uchennai@pennwell.com.

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