UK Offshore Oil and Gas Recovery

Ed Davey Excerpts

Monday 10th June 2013 Written Statements

[The Secretary of State for Energy and Climate Change (Mr Edward Davey)]

The UK’s oil and gas industry is of national importance. It plays a vital part in our economic life and makes a substantial contribution to our energy security. For decades the oil and gas sector has been one of the UK’s major industrial success stories, a key contributor to growth, jobs and tax revenue. The industry supports 440,000 jobs directly or indirectly and paid £11.2 billion in direct taxes in 2011-12, almost a quarter of all corporation taxes received by the Exchequer. Investment in the UK Continental Shelf has risen substantially in recent years, and investment in 2013, up to £14 billion, will reach an all-time high.

Some 41 billion barrels of oil and gas have already been produced from the UK Continental Shelf, and 20 billion or more could still be produced. Although peak production is now behind us, we must maintain our momentum and make the most of the huge opportunity that the UK Continental Shelf still represents. In addition to the economic importance, maximising recovery of the UK’s indigenous supplies of oil and gas will also help maintain security of supply as we continue on our journey to a low-carbon future.

While investment levels are rising and the near-term prospects for the UK Continental Shelf are strong, it is one of the most mature offshore basins in the world, and therefore faces unprecedented challenges that require new thinking. For example declining exploration and production rates, ageing infrastructure and declining production efficiency, and the risk of premature decommissioning of key infrastructure all need to be addressed if we are to extract the maximum economic benefit for the UK.

Government already have an excellent working relationship with the oil and gas industry through our pilot partnership, which has made significant contributions to addressing some of these challenges over the last decade. However, I have come to the view that the challenges we now face are of sufficient importance that they merit a focused, in-depth review. Such a review has not been conducted since the early 1990s when the challenges faced were very different to those we face now.

I have therefore invited Sir Ian Wood, recently retired chair of Wood Group, a leading UK oil services company, to lead such a review. Sir Ian will bring huge experience to the task following a career spanning four decades of leadership in the UK Continental Shelf. He will work with leaders across industry, Government and elsewhere to produce robust analysis, conclusions and recommendations for improving future economic recovery of UK Continental Shelf oil and gas.

Since 2011 there has been a range of changes to the tax regime which industry has welcomed and which has led to significant new investment. It is too soon to review the effectiveness of these changes and so this review will focus on other factors such as the licensing regime, optimising use of and extending life of infrastructure, production efficiency, better collaboration across the industry, increasing the exploration effort and maximising the use of enhanced oil recovery techniques. It will also look at the current structure, scale and effectiveness of the Government stewardship regime in line with the increased technical and commercial complexity of the mature market. While the review will not make recommendations on taxation, its conclusions may nevertheless be drawn upon in future tax policy considerations by HM Treasury.

I expect emerging conclusions from the review to be published in the autumn and the final report and recommendations to be published in early 2014.

This is an exciting time for the UK’s offshore oil and gas industry and its extensive supply chain, and I look forward to seeing the recommendations of Sir Ian’s important work.