Economic Sustainability: Case Studies

Summary of PILOT delivery in 2004

Background

When PILOT was established in 2000, it set a strongly challenging vision for the UK oil and gas industry: that the UK would still be producing 3 million barrels of oil equivalent a day by the end of the decade, sustained by capital investment of at least £3 billion per annum.

The outlook for the sector at that time was production peaking from the UK's maturing offshore reserves, volatile oil prices, competition for investment from other, potentially more attractive opportunities around the globe and high operating costs at home. Indeed, UKOOA's survey of its members in 2000 suggested that by 2010, UK oil and gas production would fall to just half this level.

It was PILOT's task to turn this prognosis around; to improve the UK industry's competitiveness, promote investment and ultimately foster a business climate which would help prolong and thereby maximise the recovery of the country's remaining hydrocarbon resource. Achieving this would bring other benefits in terms of jobs, revenues for the UK Treasury and reliable primary energy supplies. A vibrant North Sea would act as a springboard for the export of the skills and technical expertise developed to service the domestic market, helping to retain the UK as a pre-eminent global centre for oil and gas activity well into the future.

Now in its sixth year, PILOT has proved to be a dynamic forum for the government and industry to discuss strategic issues facing the sector. Meeting quarterly under the chair of the Energy Minister, PILOT unites leaders from the operator, contractor and supply chain communities with representatives from the trade unions and six government departments.

Scope

PILOT's ground-breaking projects are changing the way business is done in the North Sea. There is now improved access to exploration data; quicker and easier entry to pipelines; an enhanced licensing system with two new types of licence introduced in recent years – the "Promote" and "Frontier" licences; faster release of acreage and discoveries to those wishing to work on them; less bureaucracy and sharper focus on the investment in and around mature fields. These initiatives help those who are ready to invest to get on with the job. The PILOT concept is to develop collaborative solutions based on shared and detailed understanding of the technical, economic and behavioural factors that influence decision making and this is being applied to areas across the business spectrum.

Industry codes of practice for the supply chain and licence holders, standard contracts, mutual hold harmless and master deed agreements all aim to improve relationships between co-venturer, client, contractor and supplier, and bring benefits in effi ciency and cost savings. Share Fairs held regularly in the UK (some with Norway) allow oil and gas companies to brief the supply chain about forthcoming activities and help suppliers to plan ahead, with an estimated average annual benefit of some £6 million. Pan-industry employment issues are addressed through PILOT's workforce capacity and capability group.

Closer relations have been built with the industry's counterparts in Norway, resulting in the new Framework Treaty signed this year between the two countries paving the way for unprecedented cross-boundary cooperation on North Sea projects.

In 2002, the PILOT "vision" was strengthened with the addition of a further target for safety performance – that in 2010 the UK will be the safest place to work in the worldwide oil and gas industry.

Delivery

There are signs that PILOT's work is beginning to bear fruit. 123 companies are now active in the UK continental shelf, almost double the number in 1990. Over 30 new entrants have invested in UK production since 2000, accounting for 26 % of total capital expenditure in 2004 and 10 % of production.

The latest Licensing Round attracted the highest response in thirty years, demonstrating both the popularity of the new licensing scheme and the continuing attraction of exploration on the UK Continental Shelf, UKCS. Last year there was a 40 % increase in exploration, with 63 wells drilled; a further 37 wells were drilled in the first half of 2005. The number of new project approvals doubled to 27 in 2004, and substantial progress has been made through the fallow blocks and discoveries initiative. Of the 532 blocks identified as dormant since 2002, 442 have either activity or have been relinquished. Encouragingly, UKOOA's latest research shows that UK operators are becoming increasingly confi dent that PILOT's production "vision" for 2010 of 3 million barrels of oil equivalent per day can indeed be achieved.

Figure 13: Projected UKCS Production in 2010

The UK's remaining reserves of up to 28 billion barrels of oil and gas equivalent point to signifi cant development opportunities in the future, provided the industry remains internationally competitive and can sustain investment at current rates. However, challenges remain if the industry is to continue to slow the production decline beyond 2010. PILOT's programme and activities over the next five years will focus on removing the barriers to further development and ensure all opportunities are vigorously pursued. Further details can be found on the PILOT website: http://www.pilottaskforce.co.uk

Figure 14: A Tale of Two Possible Futures - Future UKCS Production