November 11, 2013 / 3:17 PM / 4 years ago

UPDATE 1-Britain needs new North Sea regulator urgently -review

4 Min Read

By Sarah Young

LONDON, Nov 11 (Reuters) - Britain urgently needs to set up a new regulator to encourage oil and gas companies to collaborate and counter plunging North Sea production rates, a government-commissioned review said in its initial findings on Monday.

The government launched the review of the North Sea, the first in more than 20 years, after output plunged by a third from 2010 to 2012. While production has been in decline since 1999, the big drops in recent years have acted as a drag on economic growth.

Led by Ian Wood, former chairman of FTSE 100 oil services company Wood Group, the review outlined a plan to pump an extra 3 billion to 4 billion barrels of oil equivalent (boe) than would otherwise be extracted over the next 20 years.

The plan involves establishing an "arm's-length" regulatory body that would drive collaboration between different companies, maximising the barrels pumped.

Wood emphasised that the plan should be implemented urgently to battle the North Sea's deteriorating production.

Britain faces a race against time to find and develop new fields and hook them up to existing pipelines and platforms or risk that the infrastructure is dismantled and oil is left in the ground, because the finds are too small to warrant building new facilities.

"Infrastructure - that's our Achilles heel right now - trying to consolidate infrastructure we have, get it best-used," Wood said at a news conference.

The extra barrels, equivalent to around seven extra years of production at current daily rates, would bring over 200 billion pounds ($320 billion) of additional value to Britain's economy, the review said.

Inefficiency

Industry experts have long said that Britain's North Sea, with its large number of operators, would be more efficient if there were more coordination between smaller companies and if larger companies were encouraged to allow other parties access to infrastructure they own.

With the North Sea now in its fifth decade of pumping oil and gas, new fields tend to be small and costly to exploit, while old platforms and pipelines need more maintenance, cutting output and profits. The number of operating fields has risen to around 300-plus from 90 in the 1990s.

The biggest oil companies, such as BP and Shell , are still active in the region but are concentrating on new projects off the West of Shetlands. The older areas, where there is less oil left to be extracted, are managed by dozens of smaller companies such as EnQuest and Ithaca Energy.

Under the review's recommendations, the Department of Energy and Climate Change would set up the body with "additional powers". The companies, which would fund the new regulator, would also commit to collaborate in certain areas such as sharing pipelines.

"My soundings in the industry show that the oil industry is fully up for this; I'm not encountering any negative comment," Malcolm Webb, the chief executive of the industry group Oil and Gas UK, said at the conference.

Companies and government will now have an opportunity to comment on the initial findings before Wood publishes his final report early next year.

Industry experts at a conference in September agreed that collaboration was important but also said that tax incentives would be needed to squeeze every last drop of oil out of the North Sea.

Recommendations on taxation, however, were not within the scope of Wood's review.

Wood, who met with the finance minister George Osborne as part of his research, said he was confident the finance ministry recognised its role in prolonging the life of the North Sea.

"We have had some very helpful discussion with them, and we will be passing them some further views. I think they will be prepared to become involved in a very constructive way and try to deliver this programme," Wood said.

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