Stewardship - Raising the Game
During 2004 the joint government-industry task force PILOT undertook a study on “brownfields” (how to maximise economic recovery in and around existing North Sea fields) and reported in March 2005 (see article by Paul Dymond, Operations Director, UKOOA in this issue of IOR Views). A key recommendation from this study was “Stewardship” – screening all fields to focus more detailed annual field reviews on those fields where stewardship could be a concern. Here Andrew Carr (Andrew.Carr@dti.gsi.gov.uk), Head of Field Development and Production (NNS/WoS) in the Energy Resources and Development Unit at DTI explains the implementation of “Stewardship”. This is based on Andrew’s recent presentation to DEVEX 2005.
Background
During the “brownfields” study there was concern that some fields are not being invested in to their full economic potential. A number of possible explanations were voiced, e.g capital constraints, human resources constraints, materiality of benefits, partnership misalignment, the shadow of decommissioning etc.
Analysis shows a correlation between incremental Capex and incremental reserves (Figure 1) for all assets even where operatorship has changed, so the issue is not new versus old owners, but who are the good stewards, and how can this behaviour be promoted?
Insert Fig1
Figure 1: Correlation of Incremental Reserves with Incremental Capex
Stewardship is about “doing the right things”, identifying and exploiting opportunities, and applying best practice. This requires the assets to be in the right hands, backed by resources and a willingness on the part of the operator and partners to act.
Framework and Process
The Brownfields Work Group recommended constructing a framework for raising the game on Stewardship. Specifically, replacing the Annual Field Report with a simpler data submission, constructing filtering indicators to highlight issues, and mapping out a process for improvement by stewardship, in which all joint venture partners would be fully involved.
The framework adopted for Stewardship is shown in Figure 2.
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Figure 2: Stewardship Framework
The Stewardship screening process will look at the following indicators:
- Production decline
- Capital and operational investment
- Reserves replacement
- Well utilisation
- Production efficiency
The Brownfields Work Group determined Production Efficiency to be a key indicator for Stewardship. Agreement has been reached between DTI and UKOOA Production Efficiency Work Group on the requirement for a consistent approach to evaluating Production Efficiency. UKOOA Production MRT has endorsed the use of a system based on a simplified McKinsey approach. The Data Input form is now available.
The Stewardship process operates on an annual cycle. The initial data collection and analysis phase should take one to two months. If there are any concerns on the part of DTI after this, then a number of actions are possible.
Review/Audit Process
Review meetings will be held between DTI and the operators and partners in an asset. The allocation of resources to the asset will be appraised, and the “Hopper” of incremental opportunities considered. The reasons why particular opportunities might or might not be pursued will be determined. Any specific hurdles or blockers will be identified. The alignment of the Joint Venturers will be appraised and the possible involvement of third parties considered.
If necessary, DTI will undertake a full audit using experts on specific technical issues. Technical and commercial solutions outwith those considered by the JV will be sought.
The operator and partners will be invited to develop and submit an improvement plan. This should provide for new focus on the asset, and the allocation of additional resources. If necessary, a realignment of the joint ventures should be considered - sole risk, third party investment or divestment should all be considered.
Overall the review/audit process should take between three and six months.
Sanctions
In the absence of an appropriate improvement plan, DTI has licence powers to require economic investment, and (if the operator is the problem) powers to replace the operator. Good stewardship is synonymous with attractive investment.
Closing Remarks
The PILOT Brownfields Work Group has identified that there is significant potential still to be realised in mature UKCS fields, and that there is a need to raise the game on Stewardship.
As a result of this, a Stewardship framework in now in place. It is about “doing the right things” and ensuring assets are in the right hands.
The first cycle of the Stewardship process is now underway, beginning with data collection.