Today Sir Ian Wood has published the final report from his review of how to maximise recovery of oil and gas in the UK Continental Shelf (UKCS). I am grateful to Sir Ian and his review team for the work they have done, and to all those who contributed. The report can be viewed at: www.woodreview.co.uk. I can inform the House of the Government’s initial response.
The UK oil and gas industry is of national importance; it makes a substantial contribution to the economy, supporting around 450,000 jobs, and had record capital expenditure in 2013 of around £14 billion. Oil and gas will continue to be a vital part of the energy mix as we transition to a low carbon economy, with indigenous oil and gas production supplying the equivalent of about half of the UK’s primary energy demand. It is vital, therefore, that we continue to maximise economic recovery of our indigenous hydrocarbon reserves, thereby boosting growth, energy security, and jobs.
I commissioned the review in June 2013 because, while investment levels are rising and near-term prospects are strong, there are new challenges for exploration and production, and the environment is very different to when production peaked approximately15 years ago. Production and exploration levels have fallen, and production efficiency has declined. The review recognises the positive steps already taken by the Government to incentivise recovery, such as the allowances for brownfield and small fields. The report recommends that industry commit to working with Government to implement the UK Oil and Gas Industrial Strategy, and to develop new industry strategies in areas such as exploration and decommissioning cost reduction.
The Government accepts Sir Ian’s key recommendation that Government should work with Industry to adopt a cohesive tripartite approach between industry, HM Treasury and the UKCS stewardship body to a new shared strategy of Maximising Economic Recovery for the UK (MER UK). Sir Ian Wood has identified some key recommendations for industry, including that industry commit to making the most of production facilities, does more to promote third party access to infrastructure, develops new infrastructure business models, improves collaboration, improves asset stewardship and reduces the legal and commercial burden of working in the UKCS.
The report also recommends that stewardship of the UKCS should be under a new arms-length body, funded by industry and better resourced. The Review heard consistent praise for the staff working in the current stewardship unit within DECC, but the Review concludes that it needs to be strengthened and focussed around a new MER UK strategy if it is to support industry in successfully meeting the challenges in the UKCS.
Therefore, and subject to further detailed work to support the business case, we shall proceed with taking the stewardship of the UKCS into the next phase, with a new arms-length body, funded by industry, with new resources and any necessary statutory powers to meet that challenge. We will develop plans for a new arms-length body, and will introduce legislation in the Fourth Session to bring the new body into effect. The next step will be to appoint a Chief Executive Officer, with the aim of having that person in post in the summer 2014, so that they can steer the work to design and build the new body, which could being operating in shadow form in the autumn. Stakeholders are being invited to participate in an interim Advisory Panel on implementation , which Sir Ian Wood has agreed to chair. I will publish a formal response to the Report – along with a more detailed roadmap for implementation - later in the spring.
Implementing the recommendations will require Government and industry to adopt a new, more collaborative, approach to stewardship of the UKCS. It is vital that we create the right environment for maximising economic recovery because the prize on offer is considerable. Sir Ian’s report estimates that full and rapid implementation will deliver at least 3-4 billion barrels of oil equivalent more than would otherwise be recovered over the next 20 years, bringing over £200bn of additional value to the UK economy.