Speech to the Association of UK Independent Oil and Gas Exploration Companies (BRINDEX)

Michael Fallon speech at the Association of UK Independent Oil and Gas Exploration Companies (BRINDEX).

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Sir Michael  Fallon MP

I am absolutely delighted to be here tonight.

I know that BRINDEX have a unique membership within the oil and gas industry and that this occasion – running for many years now - holds a special place on the annual oil and gas calendar.

And I view myself as extremely lucky to hold a job which straddles two very important Government portfolios – as Energy Minister at DECC and as Minister at the Department for Business.

I believe they are complementary – within energy there is an imperative and strong Government drive to bring about significant investment in the sector to ensure that we maintain secure supplies for future. And at BIS the focus is on ensuring that the growth agenda can be taken forward on all fronts, whilst promoting inward investment and British business opportunities abroad.

That’s why I was very keen to attend this dinner – to thank BRINDEX members for the valuable contribution they are making in this regard. Because it’s clear that BRINDEX members play a vital role towards these key elements of the Government’s growth agenda.

Investing significantly both here in the UK – via North Sea activities; and abroad – by way of international exploration and production.

It is a challenging and exciting time for the energy sector right across the globe – particularly with the continued increases in energy demand which go hand in hand with the vigorous growth within developing countries.

However it’s good to know that, as we all strive to maintain energy security, diversify energy sources, and move to a lower carbon economy, we still have significant quantities of oil and gas which can be relied upon to help us meet energy demands over the coming decades.

But as we all know these resources won’t just fall into our laps. There are many challenges which the industry faces in tapping these remaining resources – not least the technological challenges - high pressure / high temperature fields, drilling in ultra deep waters, as well as utilising existing infrastructure while it remains in place.

The PILOT Exploration Task Force is looking to encourage companies into underexplored areas, and expanding the boundaries of Plays, which BRINDEX Members have been pushing for many years.

I think here in the UK we are blessed with companies and a workforce who have the experience, expertise, and determination to overcome these challenges. Since taking up my role as Energy Minister I’ve been offshore and I’ve visited Aberdeen on a number of occasions now and have seen the industry’s innovative and ground breaking activities at first hand.

And I know that BRINDEX members form an important part of the vanguard of oil and gas explorers who are constantly demonstrating their ability to find new ways to get at and extract these resources.

It’s clear to me that UK independents have been and continue to play a critical and central role in the UK North Sea exploration.

Just to cite a few current examples: We have Cairn Energy and Fairfield Petroleum actively involved in the Exploration Task Force. Following my Department’s recent approval of the Kraken heavy oil development, Enquest are moving forward purposefully with drilling and development proposals.

In recent awards, Parkmead Petroleum secured a 9 year Frontier licence – by demonstrating an innovative approach to exploration with obvious long term commitment.

Encounter Oil are one of a number of independents which have been very active in bidding for new licence acreage.

And Trap Oil have been involved in unconventional oil plays offshore.

These are just some examples of how you are helping to add real value to the UK North Sea investment and exploration climate. There are of course other members of BRINDEX who I haven’t mentioned who are also playing a strong role too.

In tapping the UK’s remaining resources, there are definitely challenges, but your track record shows that you are up for the challenge. And for the Government’s part – we are too.

Even though there has been a Government / industry task force – PILOT – running for many years and successfully finding ways to tackle barriers to investment –

Even though DECC and BIS launched an Oil and Gas Industrial Strategy earlier this year -

And even though Government has brought in various positive tax changes to stimulate North Sea investment – We know that even more needs to be done to tap the North Sea’s full potential, and to secure the 20 billion UK barrels or so which remain.

That is why in June we asked Sir Ian Wood to carry out a review of the UK’s oil and gas sector and the future of the UK Continental Shelf to see if we are on track to maximise the benefits gained from UK oil and gas resources and, if not, determine what else industry and Government can do to invigorate this mature province.

As you will know Sir Ian has looked in depth at the issues that need to be addressed to ensure longevity of the industry and its benefits.
He published his interim report earlier this month and his final report and recommendations are due out early next year.

It is clear that he has had a strong and well informed dialogue with a wide range of contacts in Government and industry. In his interim report Sir Ian highlights the diverse mix of companies now operating on the UKCS, from the super majors through to the many small and independent companies who are welcome additions to the basin.

And in the evidence he received Sir Ian also heard about the problems these companies sometimes face, from difficulties gaining access to finance to obtaining third party access to infrastructure in order to process and transport their product. I know these are areas Sir Ian will be looking at in more detail for his final report and I look forward to hearing his thoughts in these areas.

Sir Ian has asked for feedback on his interim report and I would encourage industry to give its views.

It is clear that Government and industry will need to look at his recommendations very carefully when considering what measures might need to be implemented.

As I mentioned earlier part of my Ministerial portfolio is linked to promoting UK companies abroad. And it is always inspiring for other sectors to see the vast impact that oil and gas explorers, such as those BRINDEX, have in this respect.

You are carrying the flag for British excellence and enhancing the economic and energy prosperity of those countries in which you are investing. In recent years we’ve seen some excellent exploration projects moving forward in Africa, India, and South America - many with significant British involvement.

All I really want to say to you then is – keep it up!

For its part the Government will continue to support you and the rest of the industry. It’s not just offshore either - you will know that we have been pressing hard to encourage onshore oil and gas exploration in the UK.

We believe that shale gas has the potential to provide the UK with greater energy security, growth and jobs. We are encouraging safe and environmentally sound exploration to determine this potential.

Government has consulted on a proposed tax regime for shale gas, including a new shale gas ‘pad’ allowance.

The ‘pad’ allowance is based on the highly successful existing field allowances for oil and gas production. The new allowance would reduce the tax on a portion of a company’s production income from 62% to 30% at current rates.

A number of companies have existing onshore licences in place and are seeking permissions to drill exploratory wells. Some 7,300 square miles of Great Britain is already under licence, including significant areas likely to contain shale. We expect considerable interest from developers in the 14th onshore licence round, which we plan to launch next year.

And even before then, we also intend to launch a new offshore round – our 28th - early in the New Year.

And talking of licences, I am extremely pleased to announce tonight that, as part of the 27th Round process, I am about to award 52 new offshore licences.

These licences encompass all areas of the UK Continental Shelf and there is a good spread of companies who are offered acreage – many are UK independents and are in attendance here tonight.

With these further awards this makes the 27th Round the most successful Round we have ever held in terms of both licences and blocks awarded. 219 licenses were awarded in total, which is a new record for the UK. 21 of these licenses were awarded to smaller independents who are new entrants to the market. This is three times the number granted to independents in the last round.

The level of interest demonstrates the continuing attractiveness of the UK’s oil and gas resources. And of our innovative licensing system - with its choice between Traditional, Promote and Frontier licence types.

And of course it’s very good news for the UK’s economy.

And it is important that you, the industry, now capitalise on this acreage and ensure that your exploration plans proceed swiftly.

We will enter 2014 with many challenges. But I am confident that Government and industry working closely together will rise to these challenges to realise the full potential of UK hydrocarbons.

Finally I’d like to thank BRINDEX – and all of its members – for the vital role which you play and your continued investment in exploration activities both here and overseas.

Long may we all continue to keep the flag flying!

Published 28 November 2013