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1999 Annual Report

Director General's Report

As Bob Connon stresses, 1999 has been an eventful year and one significantly focused on the work of the OGITF. In its initial 6 months of intensive activity, in its final Report "A Template for Change", published in September, and in its follow up work leading to the establishment of PILOT, OGITF has energised all parts of the Industry and the key Government Departments, to identify and to address fundamental issues surrounding the medium and long term future of the UKCS.

The OGITF is without precedent in the UK oil and gas Industry. For the first time all those with real stakes in its prosperity have come together in an effort to meet the challenges brought about by the maturity of the area as an oil and gas producing province, the volatility of the oil price, and the overwhelming need to ensure that the UKCS remains competitive in global terms.

A year ago few would have predicted a recovery in the oil price from $10 to $20 per barrel in 1999, let alone the $30 that we have seen more recently. But this rapid increase has brought its own problems, not least a lack of belief in its sustainability – most expect it to fall back to $18-$20 over the coming months. And, whilst the oil price has soared from its early 1999 low, the gas price has remained firmly anchored on the floor at around $10 per barrel equivalent. As the UK’s hydrocarbon production is more than 40% gas this raises real issues.

UKOOA’s focus (and that of many other industry bodies) has shifted significantly during 1999, largely as a result of the establishment of the OGITF. Whilst cross-Industry co-operation has been increasing for some time, our role evolved during the year into a dual one – on the one hand supporting the pan-Industry activity and initiatives engendered by the OGITF, such as LIFT, DEAL, the NTO Group, the launch of LOGIC and ITF, and the establishment of the Environmental Forum with the NGOs, whilst on the other maintaining our ability, whenever necessary, to represent independently our Members’ interests on policy matters and, especially, on operational and technical issues. Safety, environmental and economic issues absorbed the large part of our effort, since these are issues that occupy societal concerns and underpin the benefits that the Industry delivers to society.

Safety

The Step Change initiative has completed a further year of hard work and, whilst the statistics seem to be moving only very slowly in the right direction, there is growing recognition right across the Industry, from the drill floor to the board room, that future improvement in safety performance is going to be driven by changes in behaviour. The issue is one of long term culture change, and not just about a fixed term, fixed target project. James May

Environment

With, amongst other things, the adoption of UKOOA’s environmental commitments, the agreement with DETR and DTI, under the aegis of OGITF, on Principles for Environmental Regulation, the establishment of the NGO Forum, the implementation of IPPC offshore, a pilot programme of INSET for Earth Science Teachers, a substantial body of technical committee work and the publication of UKOOA’s second Environmental Report, it remains clear that continuous and transparent improvement in environmental performance is a critical part of the Industry’s overall performance.

Economic

The OGITF has provided, and it is to be hoped that PILOT will continue to provide, a forum within which all the Industry’s stakeholders can seek to establish a better understanding not only of each other’s viewpoints but, more importantly and critically, of the underlying economic drivers and impacts of the Industry. The past year has seen real progress in addressing, on a common basis, such issues as jobs and employment, international competitiveness and investment. The publication at the end of the year of the Industry Economic Report was a further milestone in the development of UKOOA as an authoritative Industry voice.

Gas

With the gas price continuing to languish at $10, the Government has been sending, at best, mixed signals to UK gas producers and would-be producers: the continuation of the stricter consents policy for gas-fired power generation has led so far to 5.8 gigawatts of generating capacity being deferred and so has constrained gas demand; the introduction of the Climate Change Levy from 2001 will, we believe, further depress industrial and commercial demand; the uncertainties over the implementation of the EU Gas Directive, the UK Competition Act and the New Gas Trading Arrangements have all acted as disincentives to new investment. And yet UK gas reserves and production have the potential to play a major role in delivering not only the future prosperity of the Industry but also a substantial part of the UK Government’s commitment to reduced emissions of greenhouse gases over the coming years.

The UKCS has a long term future to supply the energy needs of the country and the potential for success seen by all parties to the OGITF has led to the formation of PILOT as a successor body. UKOOA will continue to support the initiatives set up by the OGITF and will seek ways to support PILOT and its overall objective of ensuring the continuing future success of the UK’s oil and gas Industry.

Under Bob’s Presidency, UKOOA together with the rest of the Industry, responded to the challenges posed by the new political and Industry environment in a uniquely positive way.

The challenge for 2000 is to make sure that the leadership we provide, both inside and outside PILOT helps to ensure a healthy, long-term future for our Industry so that it can continue be a key contributor to the UK’s society and economy.

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