18 April 2006
OGIA challenges UK oil & gas production decline assumption
[extract]
A leading group of 31 independent oil companies has challenged the Government assumption that by 2020 the UK is likely to be importing about 75 per cent of its primary energy.
The Oil and Gas Independents Association (OGIA) says that the decline in hydrocarbon production from the UK Continental Shelf can be slowed through active encouragement of continued exploration. There is still a great deal of oil and gas to be found and exploited, it says in its submission to the Department of Trade and Industry's January 2006 Energy Review consultation.
The DTI's Consultation document (page 5) reads "By 2020 we are likely to be importing around three quarters of our primary energy ..." This seems very pessimistic unless it is government policy to discourage future investment in the UKCS by accepting this 75% import dependency and the significant loss of UK tax take, employment, the negative impact on fuel poverty and the UK balance of trade which it implies. Provided industry and government create the conditions where investment can flourish in the UKCS, OGIA believe indigenous production of oil and gas can provide around half the UK Primary Energy supply in 2020.
The DTI invited views from a wide spectrum of interested parties, based around five questions (listed in Notes to editors), in order to help them decide whether further action was needed to meet Government goals set out in the 2003 Energy White paper, and if so, what those further actions could be.
Richard Wilson, Chairman of OGIA commented:
"Industry estimates suggest there may be as much as nine billion barrels of oil and gas yet to be found in the UKCS. As the oil majors leave the area this exploration task falls on companies such as the OGIA members. Our members are keen to contribute to the continuing success of the UKCS. However, we believe that a fiscal regime is required that encourages and rewards those prepared to take on the risks of finding and developing the UK's remaining undiscovered resources. The opposite regime is currently in place.
'With the exception of the DTI, much of Government seems to have little understanding of the way oil companies take investment decisions and their concerns about risk. The challenges and opportunities ahead require a coordinated and collaborative approach from Government and Industry. OGIA believes this joined up thinking can be achieved through the appointment of a Cabinet level, Secretary of State for Energy."
In its extensive submission, OGIA, in consultation with its 31 corporate members, has raised a number of key points for consideration by the DTI, a summary of which is listed below:
 Fundamental changes to the UK energy supply mix will take some 20 years to implement.
Until then hydrocarbons will continue to be the main contributor to the UK's primary energy requirement.
It is very much in our national interest to maximise the contribution of our indigenous oil and gas resources. Exploration has a key role in this endeavour. The UK needs a fiscal and regulatory regime that :
– attracts investment funds in competition with other petroleum basins around the world
– which is integrated across all government departments, and
– recognises and responds to long project cycles and to technical and commercial risk and uncertainty.
The Government should recognise that the current UKCS fiscal regime actively discourages the risk taking that is necessary to discover and exploit the UK's remaining unfound oil and gas resources. It does this by taxing those who produce from relatively low risk legacy assets that have already 'paid out' in exactly the same way as those who wish to take significant financial risks to discover new sources of hydrocarbons.
The OGIA believes that a fiscal regime should be developed that encourages and rewards those who are prepared to take the necessary risks to find and develop the UK's remaining undiscovered resources.
With such a regime in place the UKCS upstream industry would be focused on maximising its contribution towards the UK's economic needs through:
– increased efforts in exploration,
– development of marginal discoveries,
– increased exploitation of existing fields, and
– extending the life of existing infrastructure.
The appointment of a Secretary of State for Energy, a position of cabinet rank, heading a Department of Energy and acting as a single point of contact between industry, government and other stakeholders, would greatly assist alignment and stability in pursuit of these objectives.
The contribution, to the Scottish economy in particular, of the oil and gas supply chain (and potentially a similar supply chain in renewables) and the future potential for exports should not be underestimated by government.
If government policy does not evolve to encourage investment in indigenous oil and gas then either fuel poverty will get much worse or the government will have to find very large resources from elsewhere to make up for the contribution that the Oil and Gas industry has made.
Richard Wilson added:
"Undeveloped and undiscovered UK hydrocarbons pay no taxes, provide no jobs, fund no dividends or pensions, and brings forward the UK reliance on imported energy. It is crucial the Government maintains exploration momentum and the attraction of the UKCS to E&P companies."
For further information, please contact:
OGIA
www.ogia.co.uk
Richard Wilson, Chairman 020 7309 7653
07768 696761
chairman@ogia.co.uk
Aquila Financial Limited
www.aquila-financial.com
Peter Reilly 020 7202 2601
Ray Dafter 020 7202 2600
Download
press release in full [PDF, 72KB]
Download
submission in full [PDF, 180KB]
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