Oil & Gas - Maximising Recovery Programme (formerly SHARP) IOR Views

Context

Over the past 40 years the UK’s oil and gas industry has made a massive contribution to our way of life. It has the potential to go on doing so for decades to come. However, that success and contribution is not inevitable. This report identifies key activities and commitments that will be necessary in and around existing developments, “brownfields”, to maximise economic hydrocarbon recovery and ensure its continued contribution to the UK.

To the start of 2004, the UK economy has benefited from £195 billion (2003 prices) in North Sea taxes since the mid-1960s. Government tax revenues have been particularly strong in recent years and have averaged around £5 billion per year since 2000. The industry has invested some £211 billion in the exploration and development of the UK offshore sector since activity began. In recent years this sector has provided 17% of total UK industrial investment and employment for 260,000 people in the UK.

The UK has been self sufficient in oil for over 20 years and in gas for nearly 10 years. Whilst the UK is projected to lose its self-sufficiency in energy during the current decade, the industry will continue to meet the majority of the energy needs of the UK economy well into the next one.

The Future Prize – A Tale of Two Futures

The size of the future contribution to the UK’s economy is determined by two related sources of oil and gas: those coming from existing developments and those coming from new discoveries. This “resource base” determines the upper limit of reserves recovery. The Figure 1 shows the production that is estimated to become available from both of these sources. At the start of 2004, remaining UKCS oil and gas reserves are estimated at between 27 and 29 billion barrels of oil equivalent.

Figure 1: Projected Decline in UKCS Production

The Brownfield challenge is to implement actions which will increase the current rate at which reserves are developed over the next 10 years and beyond, to help realise the PILOT vision of 3 million barrels of oil equivalent production per day in 2010.

Figure 2: Action Areas

There are three areas in which action can be taken to maximise the size of the contribution, as illustrated in Figure 2: (1) Increase the size of the resource base. (2) Ensure that oil & gas is extracted as efficiently as possible while the infrastructure exists. (3) Extend the life of the infrastructure through which we obtain the resource.

(1) Increasing the Size of the Resource Base

The main focus of the Brownfields Study was to see how we could maximise production of oil & gas in and around existing fields. The key challenges in achieving this are the ability to develop smaller, multi-field opportunities, improve the economics of smaller, riskier projects and identify pan-industry best practice through comparative reviews.

A major advance has been obtained through the development of the concept of “good stewardship”. This has produced a new framework and processes to ensure that asset owners are consistently aligned to doing the right things, i.e. identifying and exploiting opportunities at the right pace.

Another line of study was to identify means that facilitate asset transfers (and subsequent investment) to ensure assets are always in the right hands as their economic parameters change. Decommissioning liabilities and providing securities against default on those liabilities are seen as potential barriers to trade and incremental development. The report proposes actions to rectify this. Effective implementation of the industry Commercial Code of Practice is also seen as beneficial.

(2) Ensuring that Oil & Gas is Realised as Efficiently as Possible – Maximising the Recovery

Opportunities need to be planned and implemented quickly and efficiently. There is evidence that cross-industry partnerships and new business models are delivering incremental value. Technology and supply chain effectiveness play significant roles in enabling this. Collaboration between companies has been identified as a means to provide significant improvements in delivery, where industry needs to pool effort or learning. Examples were identified in workforce utilisation, drilling wells and using subsea equipment/vessels and in the application of new technologies.

(3) Extending the Life of Infrastructure – Recognising Time Constraints

A key insight arising from the study is that time is becoming an increasingly critical factor in the ability of the industry to maximise the economic recovery of the UK’s Oil and Gas reserves. Small new projects will not be able to justify their own, new infrastructure and will need to utilise existing assets. Additionally, infrastructure needs to be both economically and physically viable.

The study shows that, unless we maintain current activity levels, around 40% of infrastructure could be decommissioned by 2020. On the other hand, if the measures arising from the brownfields initiative are successful and investor confidence is maintained, decommissioning could be delayed by 10-15 years on many of the existing systems, i.e. until 2030-35.

Recommendations

The Brownfields study concluded with the recommendation to take forward actions in:

• Improving stewardship – screening all fields to focus more detailed annual field reviews on those fields where stewardship could be a concern.
• Resolving decommissioning uncertainties – developing standard securities agreements and studying other, longer-term issues concerning international commitments and the fiscal regime.
• Improving supply chain effectiveness – with collaborative pilot projects in drilling, subsea/vessels, workforce utilisation and technology.
• Maintaining the unified reserves model developed by UKOOA & DTI.