Maximising Britain's Oil and Gas Resource
The "Brownfield" Challenge
In 1999, the predecessor of PILOT, a body representing both the industry and Department of Trade and Industry, created a vision for the industry in 2010. This vision sees the UKCS as a pre-eminent centre for oil and gas exploration, development and production at the end of the decade and the UK oil and gas contracting and supplies industry retaining its competitive edge.
The vision has the following key elements:
UKCS as the safest place to work world wide in oil and gas;
Producing 3 million barrels per day of oil and gas;
Sustaining investment at £ 3 billion per annum;
Prolonging self sufficiency for oil and gas;
Sustaining employment, up to 100,000 more jobs;
Increasing exports and generating new business.
There is good progress against many aspects of the vision with continuous improvement in safety performance and positive signs around growth of exports and new business. However there continues to be a projected shortfall against the production vision. Likewise, while investment continues to be strong in the short term, it falls off rapidly by 2010, which in turn has an impact on the outlook for employment.
UKOOA surveys show that despite the continued efforts of the industry, the production outlook for the UKCS has not substantially changed over the last three years' surveys, as shown in figure 31. At the same time, there remains a gap of about 0.5 million barrels of oil and gas equivalent per day (boepd) between these production forecasts and the PILOT vision to produce 3 million boepd in 2010. There are undoubtedly attractive opportunities in the UKCS. However, based on these surveys it is clear that the industry is not currently able to bring new reserves forward to the development stage sufficiently quickly to achieve the PILOT Vision.
Figure 25: Comparison UKCS production outlook 2001 — 2003 UKOOA surveys
This picture looks all the more challenging when viewed against the capital investment outlook to 2010 (figure 4) and operating cost outlook to 2010 (figure 5). Capital expenditure to 2010 is projected to increase by 16% compared to 2002 projections, but with no increase in the volumes being developed over the period. If this trend continues unchecked, then development costs will become unsustainable. Similarly operating costs will rise by 60% unless the industry continues to invest in new developments at current rates. For the UKCS to maintain competitiveness, the rate of production decline needs to be slowed and operating costs reduced.
Brownfields Project
The industry is now addressing the challenge to find new ways to increase the contribution from brownfields in this mature basin and has initiated the "brownfields project" in conjunction with the Department of Trade and Industry. It is unlikely that the additional reserves potential of 5 billion boe in these brownfields will be developed unless the industry, the supply chain and government approach this challenge in a completely different manner ("brownfields" are those fields already in production).
The brownfields vision is to develop five billion boe of additional UKCS reserves through collaborative action which will contribute sufficient incremental production to reach PILOT's vision of producing 3 million barrels of oil and gas in 2010. The incremental production will also benefit the economy through additional investment and employment and will reduce imports of oil and gas, thereby benefiting the balance of payments.
The project began in February 2004 and the first results should be available in the third quarter of 2004. It will identify the blockers, which are impeding the development of reserves, and focus on the solutions, enabling these brownfield reserves in the UKCS to be brought into production. Working groups are addressing:
The size of the prize to be won, addressing how much oil and gas can be targeted in this way;
Means to improve the effectiveness of asset trading and regulatory environment within the UKCS, focussing on removing barriers which may prevent fields and infrastructure changing hands;
The supply chain effectiveness, development of new business models and the deployment of new technology, all of which can improve the global competitiveness of this basin;
The economic, fiscal and decommissioning issues, which in part determine investment behaviours.
The brownfields project must overcome several hurdles to deliver the best future possible. It must increase the commercial attractiveness of the UKCS against global competition; eliminate the technical, commercial and behavioural barriers blocking additional brown field volumes; and seek a balance between the regulatory pressures and risks faced by the industry to maximise commercial activities.
Physical barriers such as the small size, depth and remote location of some prospects are natural and uncontrollable. However, other barriers can be influenced by industry and/or government such as access to acreage, data and infrastructure; the costs of exploration, development, operation and decommissioning; technological difficulties associated with extraction of resources - e.g. heavy oil and high pressure high temperature reservoirs; and materiality of potential reward versus effort, relative to other regions of the world.
Size of the Prize
The brownfields project focuses on what the industry, together with stakeholders, must do to achieve the PILOT production vision. There is a significant prize for all stakeholders if this vision is successful. The incremental investment and production over the period 2004 — 2010 could enable the UK to remain self sufficient in oil through to 2010, compared with current projections which suggest we will only produce around 75% of our oil requirements at the end of the decade. Security of gas supply will improve, with the UK projected to produce 75% of gas requirements in 2010 compared with current projections of 60%. Tax receipts will increase and the additional activity will secure additional jobs and improve UK balance of payments.
Main Report Index
