Charles Hendry's speech at Offshore Europe Oil and Gas Conference, Aberdeen: Managing Complexities Session
Firstly, I would like to thank Samir Brikho, for his role as moderator and chairman of Offshore Europe, and also for everything he is doing …
Firstly, I would like to thank Samir Brikho, for his role as moderator and chairman of Offshore Europe, and also for everything he is doing to help raise the skills of those working in the oil and gas industry.
Intro
Once again the Offshore Europe conference brings together the major players in the industry - both from the UK and internationally. And I am delighted that this year’s conference is the largest ever.
And what better place to host it than Aberdeen? A city that is renowned for the skills and expertise it provides the industry. Aberdeen has much to be proud of, it is a recognised global hub for the oil & gas industry. This is where much of the technology used around the world was originally developed. It has the home grown skills, expertise and workforce that are exported all over the world.
And for any Energy Minister, it’s one of the most positive, exciting and dynamic cities in the world.
In fact the global standard for skills and training was set right here by OPITO. I have seen for myself the huge potential that the industry still has to offer.
These important skills can also help with the transition to a low carbon future, Some supply chain companies are already diversifying to take advantage of opportunities in the renewables sector and the potential for carbon capture and storage.
Managing Complexity
Since we started exploring and producing in the UK’s waters, we have been at the leading edge of a worldwide industry. And we still are. We have continually broken new ground - literally, on the geology, but equally on engineering, on safety, on the environment and even commercial disciplines - to explore and produce safely and efficiently.
So the theme of the conference matches the future needs of the UKCS. But recent events confirm that we must never neglect the risks that complex systems brings.
Macondo
Of course the tragic Gulf of Mexico incident last year was a shock to us all - a tragic human and environmental disaster. It caused all those who have a role in the regulation or operation of offshore oil and gas activity to reflect on how the industry operates and to consider carefully the processes and procedures. As you know we in the UK have reviewed the various reports which have resulted from the US investigations, to learn as much as we could of the causes of Macondo and on what lessons we can draw for our own regulatory system.
Our starting point is our commitment to see this industry thrive and prosper. Immediately after the incident we decided to increase the number of environmental inspectors, so that we could have additional reassurance that the activities that need to be undertaken by the oil companies are carried out to ensure an environmentally safe outcome when drilling in deepwater. At the turn of the year we decided to further enhance the level of environmental oversight and extend this to drilling more widely.
This is providing the necessary level of assurance that actions are being taken to mitigate the risk of environmental incidents, that sufficient pollution control and response arrangements are in place, and that all necessary measures are being taken to manage activities in compliance with environmental regulations and related approvals. The Department has, in particular, strengthened the requirements of the operators’ Oil Pollution Emergency Plans. And OSPRAG, the collaborative body set up by the industry, the regulators and trade unions following the Macondo accident, has led on further action to strengthen the response provisions (a) by doubling the level of liability cover available through OPOL; and (b) through the provision of additional pollution prevention and response equipment such as a capping device which I will be unveiling later today.
The cap was built to allow UK operators to seal off an uncontrolled subsea well without delay, in the unlikely event of a blowout, thus minimising environmental damage and allowing valuable time for engineers to deploy a permanent solution to seal the well.
And this morning I also visited Wild Well Control’s containment system, which will be permanently based in Aberdeen, and could also play a key role in our response to any incident at an offshore well. Having it here is a big boost to our capability and a recognition of Aberdeen as one of the major worldwide hubs for offshore oil and gas intervention.
As with helicopter safety, the industry-led response is one of the hallmarks of the UK approach, and one of the reasons we have some of the most effective safety policies in the world.
With these robust procedures and contingency plans in place, the Government can be absolutely committed to supporting measures to recover the remaining resources on the UKCS, I am very pleased to announce today that I am issuing consent to Chevron to drill the “Aberlour” well, their third deepwater exploration well located to the West of Shetland since the Macondo incident. I wish it every success.
It was certainly encouraging for our approach to see that a number of recommendations covered in the US reports were based on some of our existing practices. Our record on the UKCS is strong - since 1974, industry has drilled some 317 deepwater wells in UK waters with no case of a blow-out or drilling-related oil spill - but we still remain committed to learning what we can from the tragic accident and, where appropriate, applying that to the UKCS.
As part of that process, there is an independently chaired review of our offshore regime underway at present, which is due to report later this year. I will consider this report in detail once it has been delivered.
Shell Gannet
To reinforce that we should never be complacent, we of course had the recent leak from the Gannet flowline. This wasn’t remotely on the same scale as the Gulf of Mexico blowout, but for the UK it was nevertheless the most significant oil spill in the last decade.
My Department and the other regulatory bodies were fully involved in the actions to stop and mitigate the impact of the release from the outset, placing key emphasis on safety and environmental protection. My officials are now involved in a thorough joint investigation with the HSE to determine the cause.
The fact is that our approach - and that in Norway - has delivered good levels of investment and high levels of safety, and we are not persuaded that internationally set standards would be as robust or effective.
PILOT
As Minister, safety is key, but so is ensuring the North Sea remains a competitive region for investment and exploration.
That is why I decided to refocus PILOT, the oil and gas task force, starting with a very successful summit last year, which brought together a wide cross section of the oil and gas community, to discuss and understand the issues they felt were the most crucial to future development and prosperity of the basin.
This gave me a clearer idea of how PILOT could impact on a number of key areas, and at our PILOT meeting in March we agreed to focus on 3 work-areas.
Firstly, to look at the nationally important Infrastructure we have in the North Sea and to consider how its maturity will impact on the limited window of opportunity we have to develop the resources that lie in its hinterland.
Around 50% of the infrastructure we have is past its design life and the workgroup will consider how we reconcile this with the need to fully develop the current known reserves and the yet to find deposits, which will help us reach the full productive potential of the UKCS.
The second area is Improving recovery. Currently the UK recovers only around 38% of the hydrocarbons in the reservoirs. Increasing this by even a small amount would be hugely beneficial - each additional percentage of recovery could be worth over $20billion. There is a limited time for us to achieve this and it is partially reliant on the lifespan of our current infrastructure.
The third work area is Access to Capital. We see a lot of the new discoveries and developments being driven by small operators strength of approach and they can find accessing funds challenging. A workgroup is looking at the issue to see if there are improvements that could be found.
These aren’t endless talking shops, but work groups charged with finding solutions, which can be implemented, and then turn that attention to other issues. And I am very grateful for the involvement of Oil and Gas UK and in particular Malcolm Webb in this initiative.
Future Developments
2011 seems to be shaping up to be our best year for new developments in at least a decade, on a par with some of the very early years of the industry. We are tracking a number of significant developments coming forward and I am keen to see some of the substantial value of these developments coming to the UK.
The UK has a proven ability to contribute in a major way to these developments, from our pre-eminent front end engineering and design and our excellent control systems. through to our world-leading subsea technology and skills.
Our fabrication sector also has a high quality record in building jackets and topsides and has the capacity and capability to win a significant percentage of the work we see coming.
To showcase this capability we have published a directory which shows details of these yards and we will be sharing this with the UK operator community. I would encourage all the operators in the UK to seriously consider this UK capability - if not, I would like to know why, so we can help make a better case for the expertise of the UK supply chain in the future.
Kinnoull Development
So it is very pleasing to me to highlight the Kinnoull subsea development, whose development plan I am consenting today. The field will produce about 45,000 barrels of oil a day and have developments costs of around $1billion or £700 million. It is anticipated to have a very substantial UK involvement in its build, around 90% of the spend. I hope that other projects of this type, of which we have a number, will also be able to involve UK industry to a significant degree.
Fiscal /Budget
Of course I cannot talk about the UKCS without briefly mentioning taxation and the fiscal regime. We understand that the changes in the last Budget were not well received by the industry, but it has to be said that it has resulted in an important dialogue between the industry and my Treasury colleagues - about the economics of the UKCS oil and gas business, the scope for allowances, the handling of decommissioning and so on. In particular, my Treasury colleague Justine Greening - who will be here on Thursday - has agreed that a parallel fiscal PILOT group should be formed to allow an ongoing dialogue between Government and industry about the context in which oil and gas projects are proposed in the UK.
In both DECC and Treasury, we want to see this lead to a closer working relationship.
Conclusion
This industry is unlike any other. Like so many Ministers, I am in awe of its breathtaking ambition, the refusal to be daunted by overwhelming challenges, its long term ambition the courage of its people, and the fact it is so well placed to respond to the complex issues it is facing.
As Ian Wood has said, there is a considerable gap between the 11 billion boe we are currently set to recover and the 24 billion boe which industry believes we could recover.
Our job and indeed our national duty is to work together as industry and Government - in London and Holyrood - with some of the best and most dedicated civil servants to optimise those returns from the UKCS.