news and informaon from Oil & Gas UK issue 11 | dec 2009 in this issue Keeping the lights on David Odling discusses the significance of gas in the energy mix W A new structure for Oil & Gas UK - a major evoluonary step Bob Keiller introduces Oil & Gas UK’s new supply chain directorate Seng the record straight Malcolm Webb on the importance of finding the right balance for the North Sea tax regime Engagement and recognion - important steps to becoming the best John Forrest on the importance of engaging with the offshore workforce Finding the balance
Transcript
news and information from Oil & Gas UK issue 11 | dec 2009
in this issue
Keeping the lights onDavid Odling discusses the significance of gas in the energy mix
WA new structure for Oil & Gas UK -a major evolutionary stepBob Keiller introduces Oil & Gas UK’s new supply chain directorate
Setting the record straightMalcolm Webb on the importance of finding the right balance for the North Sea tax regime
Engagement and recognition - important steps to becoming the best John Forrest on the importance of engaging with the offshore workforce
Finding thebalance
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ContentsWelcomeAt last month’s Oil & Gas UK Awards, guests were transfixed by a rather astonishing display of grace, strength, agility and balance. Two performers in a fluid duet made the most difficult balances and counterbalances appear effortless. Yet there can be no denying that their performance demanded an extra-ordinary degree of care, co-operation, mutual trust and stamina.
You will forgive us then for using the photograph of the statuesque pose pulled off by our acrobalance performers on our front cover, not just to highlight the achievements of our Oil & Gas UK award finalists (see page 4) but also as a metaphor for the challenges we face as an industry and our response to them.
Several of the articles in this last issue of Wireline for 2009 touch upon the collaboration, confidence and perseverance needed to resolve many of the issues on the industry’s agenda today – and the progress that can be made when, as a body, we work together to find the solutions, whether it’s about finding balance in the North Sea tax regime, improving safety in our offshore operations, rising to the demands of decommissioning or the introduction of a new industry mutual hold harmless agreement.
Finding the right balance in policies that will promote the future success of the UK’s oil and gas industry (and the country’s energy policy) is one which will increasingly take centre stage next year as the country prepares for the general election sometime in the spring.
Here at Oil & Gas UK, we are responding with two major pieces of work. The first is the creation of a new directorate at Oil & Gas UK which will focus specifically on the supply chain, addressing its many issues and developing the compelling story that demonstrates its significant contribution to the UK economy. On page 14, our co-chair Bob Keiller explains his thinking behind the decision.
The second is a policy framework document, to be launched in January, which sets out the policies we believe will help to maximise recovery of the UK’s offshore oil and gas resource, enabling it to play its full role in UK security of energy supply, and promote the long-term health of the industry’s supply chain.
2010 will also see the launch of the UK Oil and Gas Industry Safety Awards and I would like to draw your attention to the advertisement on the back page, giving advance notice of the search for suitable candidates. We are running these awards in conjunction with Step Change in Safety and we are delighted that Judith Hackitt CBE, chair of HSE, will give the inaugural UK Oil & Gas Industry Safety Lecture at the awards ceremony in April.
Finally, may I take this opportunity to wish you all and your families a very happy Christmas and a prosperous New Year.
TrishaO’Reilly CommunicationsDirector
Wireline is published by Oil & Gas UK, the leading representative organisation for the UK offshore oil and gas industry. Oil & Gas UK’s members are companies licensed by the government to explore for and produce oil and gas in UK waters and those who form any part of the industry’s supply chain.
We want to hear your views on our newsletter so please send us your feedback as well as ideas for future articles.
Contact: Britta Hallbauer in the Oil & Gas UK communications directorate Email: [email protected] Tel: 01224 577331
NEWS
Signup!Signup! The new Industry Mutual Hold Harmless DeedJournalistsgainfirst-handknowledgeofindustryTrip to Shearwater highlights scale of the UK oil and gas industryPLBreintroductiondueearly2010Testing phase is nearing completionOutstandingtalentcelebratedatOil&GasUKAwardsIntroducing the winners of this year’s awards ceremony
THEVIEW
Settingtherecordstraight The North Sea tax regime – finding the right balance between the short, medium and long term
PARLIAMENTARYUPDATE
EngagingBrusselsAndrew Bassett provides insight into his recent engagement with MEPsCrosspartyengagementatoppriorityforOil&GasUKAn update on recent meetings with politicians from all main political parties
FEATUREARTICLES
TheMarineandCoastalAccessActexplainedMick Borwell explains what impact the new Bill will have on oil and gas operations Keepingthelightson David Odling discusses the importance of gas for the UK’s security of energy supplyCelebratingadecadeoftechnicianapprenticeshipsLooking at an industry success story: the Technician Training Scheme DecommissioningintheUKoilandgasindustry How best to manage the liability without impacting incremental development investmentNewstructureforOil&GasUK–amajorevolutionarystepBob Keiller introduces Oil & Gas UK’s new supply chain directorateEngagementandrecognition–importantstepstobecomingthebest John Forrest on the importance of engaging with the offshore workforce
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Wireline | issue 11 | dec �009
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News
All companiesworking for oil and gas operators on theUKcontinental shelf (UKCS)arebeing invited to signup to thenew industry mutual hold harmless deed (IMHH) which,like its predecessor, helps companies to allocate betweenthem the risks and potential liabilities they might face intheoffshoreworkplaceandavoidpayingoutduplicatelegal,administrativeandinsurancecosts.
The existing IMHH, which was launched in 2002, terminates at the end of December 2011 and to ensure continuity, a new deed has been drawn up which has already been signed by a number of companies; all remaining members of the existing IMHH and those new to the scheme are being encouraged to sign this new deed as soon as possible. Paul Dymond, Oil & Gas UK’s operations and supply chain director, explains the importance of the new deed: “It is not unusual to have ten or more companies working alongside each other offshore. The IMHH addresses the contractual gap
which traditionally exists between them so that the allocation of risk and liability is clear in the event of injury, loss or damage to people or property.
“The IMHH is not tied to a specific contract for services or to specific facilities but is intended to underpin all offshore activity in the UKCS. Where a lack of clarity on the allocation of risk leads to action through the courts, considerable management time and expense is incurred. Use of the IMHH can therefore result in significant internal savings for all parties involved. The deed should also lead to fewer claims and counter claims which should ultimately reduce insurance premiums.”
The wording and structure of the new deed is similar to the original but it will now cover Irish waters as well as the UKCS. It will also apply to companies operating emergency response and rescue vessels, supply vessels and crane vessels.
To find outmore and sign up, please contact PiaMandler [email protected]
Howcanjournalistsgraspthesheerscaleof the oil and gas industry when mostof its operations are ‘invisible’, hiddenbeyondthehorizon?Theobviousansweristotakethemtoitsheart-anoffshoreplatform.
This is why on 30 September, Oil & Gas UK and Shell U.K. Limited linked up to invite a group of journalists for some first hand offshore experience. Shearwater gas platform offshore installation manager Graham Sheedy and his team warmly welcomed journalists from the Independent and the Herald newspapers, Reuters news agency and Upstream magazine.
Before they were allowed to fly offshore, they had to do their HUET survival training, which gave them a personal insight into what every prospective offshore worker undergoes before getting on a helicopter.
As a result, their half-day visit to the nine-year-old North Sea platform, 200km east of Aberdeen, had added breadth and depth that put their hours of training into real-life perspective.
The highlight for the journalists was undoubtedly the platform tour. Graham explained the challenges of producing gas from a high pressure, high temperature reservoir, showing them the impressive wellheads and describing the new decompression project that will help extract more hydrocarbons.
“Each time I go offshore I learn a huge amount about the issues facing the industry, and it was no different with this trip to Shearwater,” Robert Watts from Upstream commented. “As a journalist covering the UK oil industry, and offshore safety in particular, I find visits to facilities
Journalistsgainfirst-handknowledgeofindustry
Tom Bergen, Reuters; Mark Williamson, The Herald; Sarah Arnott, The Independent at the HUET training
and the chance to meet and speak to the workforce immensely valuable.”
IfyourcompanywouldliketoorganiseajointoffshorevisitoravisittoanonshorefacilitywithOil&GasUK,pleasecontactthe communications team on 01224577250.
Signup,Signup!
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PLBreintroductiondueearly2010
News
Personal locator beacons (PLBs) couldbeback inuse in theUKCSnext spring,uponcompletionoftestscurrentlybeingcarried out by the manufacturers andhelicopteroperators.
PLBs, which were being carried by some passengers on offshore helicopter flights, were withdrawn from service in the UK in March this year, following the ditching of a North Sea helicopter in February. It was found that interference from the personal beacons had caused the ‘smart’ long-range beacons on the life rafts to shut down.
Two key conditions must be met before PLBs can once again be safely reintroduced to UK waters. Firstly, smart beacons on the helicopter life rafts need to be replaced with non-smart technology, and secondly
it must be shown that PLBs cannot be activated inadvertently during normal operations and that they will be effective in the event of an accident.
The first step, the removal of smart technology from the beacons on the helicopter life rafts, is now well underway and is set for completion by the end of 2009.
The second part of the process involves extensive testing (known as ‘carriage analysis’), agreed by the CAA. This includes rigorously checking the PLB equipment itself and then analysing how it interfaces with the aircraft.
The equipment tests have now been carried out by the manufacturers and
Karina Sultanova, supply chain consultant with Shell U.K. Limited, was presented with the Oil & Gas UK Award for Overall Excellence by guest of honour Sir Ian Wood, chairman of Wood Group. David Maxwell, production operations technician with Apache North Sea Ltd, scooped the Oil & Gas UK Award for Young Technician of the Year, while Craig Porter, engineering services manager with Subsea 7, received the Oil & Gas UK Award for Mentoring.
In the corporate categories, Halliburton and E.On Ruhrgas North Sea UK Ltd was presented with the Oil & Gas UK Joint Award for Supply Chain Business Innovation; and Weatherford scooped the Oil & Gas UK Award for People Development.
Speaking on behalf of the evening’s main sponsor, John Gallagher, vice president - technical for Shell Upstream Europe, said: “It is important for the industry to celebrate and reward technical excellence as well as encourage the new ideas and new ways of working that will drive forward progress and meet the challenges of the future. The overall quality of the entries to these awards, and notably of the winners, has been exceptional and goes to show the high calibre of talent present in our industry.”
Left to right: Craig Porter of Subsea 7; David Maxwell of Apache North Sea Ltd;
Jan Calder of Weatherford; Karina Sultanova of Shell U.K. Limited; Alan Bagley
and Kevin Yule of E.On Ruhrgas North Sea UK Ltd and Gordon McCullough of
Halliburton.
covered human factors (for example accidentally switching on or dropping the PLB) and environmental factors (how it withstands heat, humidity, cold, etc).
Two types of PLBs were tested and have met all the necessary requirements. These are the ‘Sea Marshall AU9-HT’ manufactured by Marine Rescue Technologies Ltd and the ‘Rhotheta RT-B77’ manufactured by Rhotheta Elektronik GmbH.
The equipment test results have now been passed on to the helicopter operators so that they can begin testing the PLBs against the different helicopter types. It is hoped that this phase will be completed by January 2010 after which PLBs can be re-introduced as soon as adequate stocks are manufactured.
OutstandingtalentcelebratedatOil&GasUKAwards
Wireline | issue 11 | dec �009
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The View
There has been some confusion in thepressof late regardingwhereOil&GasUK standson thepetroleumproductiontaxregimeintheUK.I’dliketotakethisopportunitytosettherecordstraight.
Put simply, the attractiveness to international investors of oil and gas projects in the UK compared with those overseas is determined by four headline factors: materiality, cost, commodity prices and tax. With maturity, these factors are stacking up against the province. Exploration in the first three quarters of 2009 was 57 per cent lower than in the same period in 2008. We will see a further fall in investment this year against 2008, when it was already down 20 per cent compared with 2006. Part of Oil & Gas UK’s job is to look at how changes to the tax regime could help reverse this trend by improving international competitiveness.
The average discovery size in this fourth decade of exploration on the UK continental shelf (UKCS) is 15-20 million barrels, just one tenth of the size of finds in the first decade, and much smaller than the accumulations being found in younger provinces such as Angola and Brazil.
The maturity of the UKCS means the oil and gas that was easiest to recover has been extracted and the remaining reserves are more technically challenging and expensive to produce. To drill a well, for
example, an operator in the UK will spend £10-20 million and up to £100 million in a high pressure high temperature reservoir or a particularly remote or deep area of the seabed.
Oil companies in the UK cannot control commodity prices. For oil, these are the same the world over, but in the case of gas, the UK has seen sustained low prices which reduce or even eliminate margins on gas developments.
The industry recognises that it must control its costs and it is striving to do just
that. A major focus is now on increasing efficiency, with operators and contractors seeking new ways of doing business which create greater value at lower cost.
However, the final factor which influences investment and consequent production is wholly within the control of government, namely the tax regime and we do not believe that the current regime will result in the maximum recovery of the remaining reserves.
We fully acknowledge that the government is in a difficult position with regard to public finances now and so there is very limited,
if any, scope for reducing the overall tax burden on the industry today. We also recognise that the new field allowance announced in the 2009 Budget was a step in the right direction but we feel the government needs to be much bolder with this measure, which only applies to future production and so has no immediate impact upon current tax receipts.
So, for example, we are arguing that the rules on project eligibility for high pressure high temperature fields need to be made less stringent. In addition, we have long held the view that new field developments
west of the Shetlands should be brought within the scope of the allowance and that certainty must be provided on the tax treatment of decommissioning.
Furthermore, as we explained to the Chancellor at our recent meeting with him, when the country begins to emerge from the recession the overall tax rate will need to be reduced in order to boost competitiveness and ensure that recovery is maximised in this fast maturing province. This will help secure the UK’s energy supplies and sustain tax revenues, employment and exports. But, just to be clear, we are not asking for a reduction in current tax rates today as we understand the country simply cannot afford that right now. What we are asking is that government finds the right balance between the short, medium and long term.
Settingtherecord
straightontaxbyMalcolmWebb,chiefexecutive
Oil&GasUK
“...when the country begins to emerge from the recession the overall tax rate will need to be reduced in order to boost competitiveness and ensure that recovery is maximised in this fast maturing province.”
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Parliamentary Update
During 2009, Oil & Gas UK has beenconcentrating on developing andmaintaining contacts with relevant UKMEPs.
Prior to the election of the new European Parliament in June, this had focused on those MEPs representing Scotland – where the UK oil and gas industry has the largest footprint. Post-election, Oil & Gas UK has continued to engage with the two Labour, two SNP, one Liberal Democrat and one Conservative MEP representing the Scottish region. However, as the structure of the new Parliament became clear, this strategy was extended to include other UK MEPs on relevant committees, as well
Following a successful and busy partyconference season in the autumn, Oil& Gas UK is continuing its work withpoliticians from themain parties in therun up to the general election in 2010–whenitcouldbeallchange.Weexpectthere will be hundreds of new MPs inthenewParliamentand inanticipation,Oil & Gas UK has already started itscontact programme with ProspectiveParliamentary Candidates (PPCs) in keyareas.
A true cross party discussion was achieved at the Oil & Gas UK energy breakfast in London on 1 December with speakers Charles Hendry MP, Simon Hughes MP and Mike Weir MP representing the views of the Conservative, Liberal Democrat and SNP parties on energy issues. Unfortunately the Parliamentary Under-Secretary of State, David Kidney
as those who are new to the Parliament. Of particular interest to Oil & Gas UK are those MEPs on the Industry, Research and Energy (ITRE) and the Environment, Public Health and Food Safety (ENVI) Parliamentary Committees.
In October, Oil & Gas UK held a series of face-to-face meetings in Brussels with a number of UK Conservative MEPs from the new European Conservative and Reformist political grouping. These included Kay Swinburne, Jacqueline Foster, Julie Girling and Marina Yannakoudakis. These introductory meetings were organised in collaboration with the UK Petroleum Industry Association (UKPIA) and proved
extremely useful in terms of making new contacts in the Parliament, as well as providing opportunities to present a general overview of the UK upstream sector and discuss particular EU issues of relevance to the industry.
With the ratification of the Lisbon Treaty, the European Parliament is set to strengthen its influence over the EU legislative process, as the treaty allows for an increase in the procedure for joint adoption of legislation between the Parliament and the Council of Ministers. This is all the more reason why Oil & Gas UK intends to extend and continue its programme of engagement with MEPs over the coming year.
EngagingBrussels
Crosspartyengagement
MP, was unable to attend due to other commitments, but Frank Doran MP stood in at the last minute.
It was good to see the Rt Hon Ed Miliband MP, Secretary of State for Energy and Climate Change, visiting Aberdeen on 30 November. His department had a busy month with its national policy statements published for consultation on 9 November and an Energy Bill announced in the Queen’s speech. The Energy Bill has since been published and has started its progress through the House of Commons. It will include financial assistance for carbon capture and storage schemes, new regulations for the gas and electricity markets and several schemes for reducing fuel poverty.
Shadow Energy Minister, Charles Hendry MP also spent a day in Aberdeen on 4
December and we hope that what he saw and heard during his visit will have a positive impact on the Conservative Energy Green Paper which is expected to be published before Christmas.
At the end of November, DEFRA Ministers celebrated the success of the Marine Act reaching the statute book. After three years of working with the department’s officials, Oil & Gas UK is very pleased to see the legislation retain a good balance between environmental protection and socio economic issues. There is still much work to be done on the implementation of the Act and Oil & Gas UK attended a meeting in Edinbugh with the Scotland Office Minister Anne McKechin MP and DEFRA Minister Huw Irranca-Davies MP in early December to discuss the differences between the Marine Bills in England and Wales and Scotland.
Wireline | issue 11 | dec �009
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The Marine and Coastal Access Billpassed its final hurdle in the House ofLords and received Royal Assent on 12November to become the Marine andCoastalAccessAct.Thisisamajorpieceof primary legislation that introducesthe concept of planning into use of themarine environment and requires theestablishment of Marine ConservationZones. Oil & Gas UK, together withother industrial sectors using themarine environment, has worked hardthroughout the several years taken todeveloptheBilltoensurethatindustrialand conservation needs are properlybalanced. Hereweexplainthe“insandouts” of the Bill and the impact it willhaveonUKoilandgasoperations.
Background
Environmental NGOs have long asserted that habitats and species in the UK marine environment are not adequately protected by international measures and through intense lobbying secured a commitment from the Prime Minister in 2001 to introduce new measures to improve marine nature conservation. Two influential reports, published in 2004/5; ‘The Review of Marine Nature Conservation’ and ‘Charting Progress – An Integrated Assessment of the State of UK Seas’ concluded that increasing pressure on the marine environment as a result of development and exploitation had resulted in adverse changes to marine life. The complexity of the regulatory regime also did not facilitate forward planning or
an assessment of the cumulative impact of simultaneous activities.
In response, the UK government agreed that the conservation of marine ecosystems alongside thriving marine industries and communities would need legislative underpinning through a Marine Act which would be produced within the lifetime of the current parliament. As the lead department, the Department for Energy, Food and Rural Affairs (DEFRA) initiated an extensive programme of stakeholder engagement to develop the Marine and Coastal Access Act which includes measures on marine planning, marine licensing, marine nature conservation, marine fisheries management and coastal access. It also includes a new delivery body – the Marine Management Organisation (MMO).
Thekeyissuesandimpactonoilandgasactivity
MarinePlanningThe Bill enables strategic decisions to be made about what activities, including those for nature conservation, are allowed in the marine environment, and where they should take place. Throughout the formation of the Act, the industry position (as with other sectors using the marine environment) has been to support the principles of the Act, as the processes proposed should provide greater certainty to existing and future operations, particularly where there may
be the potential for spatial conflict with other sectors.
MarineLicensesThe Act requires that virtually all activities (except fishing) in the marine environment will require a Marine License issued by the MMO. The Department for Energy and Climate Change (DECC) will be the designated licensing authority for oil and gas activities, except within Scottish and Welsh controlled waters (0 – 3 miles). A consultation on the licensing and charging scheme will be issued by DECC in due course. All oil and gas activities will be exempt from Marine Act licensing with the exception of deposits on the seabed during decommissioning, disturbance of the seabed, removal of anything from the seabed, use of explosives and the laying of certain types of cables. The MMO, Marine Scotland, Welsh Assembly and Northern Ireland Assembly will be consulted on applications for licences. All installation related enforcement for both Marine Act conservation provisions and Offshore Conservation Regulations will also be undertaken by DECC.
MarineConservationZones(MCZs)The Act requires a network of MCZs to be established across the UKCS and environmental NGOs are firmly of the opinion that the designation of these zones should be based purely on science, with socioeconomic issues only being considered when developing management plans. The risks of a science only designation are the potential for MCZs to be established adjacent to or around existing operations with discharge or other controls retrospectively applied. Areas may also become unavailable to new activity. Oil & Gas UK, together with other industries in the Seabed User and Developers Group, has lobbied successfully for socioeconomics to be taken into account at the time of designation.
Oil & Gas UK will engage in consultation on the secondary legislation that will implement the Act, starting with proposals for the delineation of marine plan areas.
TheMarineandCoastalAccessActexplained
byMickBorwellenvironmentalissuesdirectorOil&GasUK
Feature Article
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Feature Article
Security of energy supply continuesto make newspaper headlines, amidthe continuing drive to reduce theemissions of green-house gases (GHGs).However, as wewrote in our EconomicReport published in July, much of theattention within government has beenconcentratedon the ‘CC’partofDECC’sresponsibilities and maybe not enoughonthe‘E’part.Theelectoratewouldbemostunforgivingifthelightsweretodim,nevermindgoout.
Interestingly, very senior industrialists have spoken openly in recent weeks about the great difficulties in meeting political aspirations for reducing emissions of GHGs and pointing to gas as the fuel with which to make the transition from today’s world to a lower carbon future, particularly in the generation of electricity. These senior industrial statesmen include the heads of BP, E.On and Centrica. While it might be tempting to comment “Well, they would say that, wouldn’t they?”, it should not be forgotten that the companies which they
lead already have significant commitments in the production of renewable energy. What they are pointing towards is the need for a more holistic approach to the whole subject. Furthermore, in the industrial sector, we are not alone. The Energy Intensive Users Group, representing the big downstream users of energy, has spoken clearly about these risks, as seen by them.
In Britain, the biggest concern is in electricity generation, because of the amount of old plant (coal, oil fired and nuclear) which has to be retired in the next 10-15 years on account of age and/or limits on emissions. Combined Cycle Gas Turbines (CCGTs) are the only means of filling the gap on the scale required; the technology is proven with high operating availability, its capital cost is the lowest, it has short construction time and can be built at the large scale necessary to replace existing power stations. Gas also has the lowest carbon content of any fossil fuel and the highest generating efficiency,
thereby reducing emissions per unit of electricity by 50 per cent compared with today’s coal fired power plant (the largest quantity to be retired is coal fired).
But what about fears of over-dependency on gas? Much has been written about gas supplies in recent years, sometimes in unduly pessimistic terms because, we believe, of misunderstandings about market dynamics and likely new developments. Also, strangely, the same sentiment is rarely expressed about oil, even though almost the entire transport system of the world depends on it. Proven reserves of gas amount to more than 60 years of current consumption and some 70 per cent of these reserves are within economic transport distance of the EU. Furthermore, it is estimated that there are another 100 years of the current consumption of gas available around the world waiting for technology to unlock them and turn them into proven reserves. Notably, this has already begun in the United States of America with shale gas.
KeepingthelightsonByDavidOdling
energypolicymanager
Oil&GasUK
Wireline | issue 11 | dec �009
Page 9
We highlight below some of the salient factors which are changing gas supplies and markets worldwide to the benefit of British consumers.
The availability of gas has improved recently in two major ways: i) the rapid expansion of the production of shale gas in the USA and ii) completion of several previously delayed, new gas
liquefaction plants in the Middle and Far East, with further capacity coming on-stream in the next few years. LNG is now being traded more like oil, and cargoes are increasingly moving in line with pricing signals, rather than being constrained by long term contracts, which will benefit the UK over other less open markets.
As far as Russian gas supplies are concerned, at the moment we have no dependency on them, although other western European countries clearly do. However, the development by Gazprom and its EU partners of the twin Nord Stream pipelines along the Baltic Sea to Germany and the potential development of the South Stream across the Black Sea into the south-eastern EU should ensure the free flow of Russian supplies in future years.
In addition, the proposed new Nabucco pipeline from the Caspian region into central Europe moves ever forward.
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It should not be forgotten that, as much as buyers in the EU (and elsewhere) need the gas, sellers need the revenue. More than 50 per cent of Gazprom’s income comes from sales of gas to EU countries.
Within the EU, it will be important to ensure that the recently agreed ‘third package’ of liberalising measures is
fully implemented. Current signs in Germany, the most important gas market in continental Europe on account of both size and geography, are encouraging (the UK is the EU’s largest market, followed by Germany and Italy). Open energy markets form a fundamental part of ensuring security of supply.
The one area in the UK requiring improvement on a five to ten year view is gas storage. Various projects have been badly delayed in planning and subsequently, in some cases, by a lack of finance. The new planning regime should improve matters, but this needs to be kept under close review to ensure delivery as intended. It is entirely plausible to consider that some of the difficulties experienced in recent years would have been lessened if more storage projects had been able to move forward in line with their developers’ original plans.
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However, if the gas from the UKCS is to continue to play its part in security of supply, it is clear that a more responsive fiscal and regulatory regime is required. The Energy & Climate Change Committee of the House of Commons made this point in its report published in June, as did Malcolm Wicks MP, the Prime Minister’s energy advisor, in his excellent report on energy security published in August. Phase III of the EU Emissions Trading Scheme will not help though, however well intended it is, some oil and gas will be left in the ground as a result, which we will simply have to buy from elsewhere. With the right regime, the UKCS could still be producing 60 per cent of our oil and 25 per cent of our gas needs in 2020; if not, production will be very much less, with substantial loss of revenues, exports, taxes, jobs, skills and technology. Government and the industry have to find ways to ensure that it is right.
“Proven reserves of gas amount to more than 60 years of current consumption and some 70 per cent of these reserves are within economic transport distance of the EU.”
David Odling, energy policy manager Oil & Gas UK
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Feature Article
TheUKoilandgas industryrecentlycelebratedthemilestone intakeof the1,000thmodernapprenticeto its hugely successful technician training scheme.Thismarked the 10th anniversary of the industry’sefforts toprovideagrassrootssolutiontotheneedforacompetent,stableandflexibleworkforcebothnowandinthefuture.
£73 million has been invested by the industry in the training
scheme since its inception in 1999 and it is now regarded as
one of the most successful and relevant in the UK in terms of
equipping the next generation of workers with the range of work-
ready skills and experience employers need.
Around 100 trainee positions are available each year on the four-
year programme which is run and organised by Oil & Gas UK, the
Offshore Contractors Association (OCA) and the relevant skills
bodies, OPITO – The Oil & Gas Academy and the Engineering
Construction Industry Training Board (ECITB).
The scheme boasts one of the best retention rates in the country;
91 per cent of the apprentices complete the course and go on to
find employment, compared with the national average of 55 per
cent.
During their training, technicians gain knowledge and develop
their skills in process operations, electrical maintenance,
mechanical maintenance and instrument and control
maintenance. The course combines off-the-job training at one of
five industry-appointed colleges in Aberdeen, Edinburgh, Falkirk,
Fraserburgh and Middlesborough and two years’ worksite training
with a sponsoring company.
The milestone was noted in the Scottish Parliament by Labour’s
economy and skills spokesperson, John Park MSP, who
commended the industry’s achievements. He commented: “A
highly skilled workforce is key to meeting the future production
needs of the oil and gas industry in the UK and the investment
that has been put into the Upstream Oil & Gas Industry
Technician Training Scheme is vital. I am delighted to recognise
the achievements of these apprentices. The high number of
apprentices who complete their training is testament to the
quality of the scheme and should be congratulated.”
Wireline profiles two employees who started their oil and gas
Sinead Kelly was one of the first apprentice technicians to join the
scheme. Ten years on, she looks out over SURF (Subsea, Umbilical,
Risers and Flowlines) City from her office in Aberdeen’s Westhill,
and considers the opportunities that this decision gave her.
After gaining a national certificate in electronic engineering and
measurement & control, Sinead joined the scheme to study
at Aberdeen College before gaining on-site experience as an
operations technician on Shell’s Dunlin Alpha platform. She was
surprised how much she enjoyed the course and enjoyed working
with the lecturers who had worked offshore, as they provided a
realistic insight into life on a platform.
Sinead remembers the scheme being all-encompassing but
found an early interest in health and safety, which, she decided
to pursue further after she qualified as a technician.
Sinead therefore jumped at the chance to become a safety
representative on the Dunlin Alpha platform and has since gone
on to pursue further after she qualified as a technician. Now
working as a health, safety, security and environment advisor
with TAQA Bratani Limited, she experiences first hand how the
industry values the young people who go through the scheme
to emerge equipped with the work-ready skills and knowledge
it needs.
Name:DavidMaxwell
Joinedtechniciantrainingscheme:2001
Role:productionoperationstechnician
Company:ApacheNorthSeaLtd.
Following an apprenticeship with BP at Grangemouth, David began
work offshore on Forties Delta in 2003 as a designate mechanical
technician. His desire to progress and gain experience in a range
of areas led him to cross-train as a production technician and
subsequently to take on the role of control room technician.
David was quickly offered the position of nightshift area authority,
giving him the chance to lead the production operations team,
with greater accountability for all ongoing maintenance and
construction activities
Relatively early on in his career, David is finding his mechanical
and process skills being routinely put to the test. He has taken
a lead role in finding a solution to pump seal failures, used his
initiative to investigate a problem in the produced water degasser
vessel and throughout 2008 and 2009, David was responsible for
planning and coordinating the intensive TAR outage carried out
on the platform in May 2009.
In November 2009, his high flying achievements were recognised
by the judges of the Oil & Gas UK Awards when he was presented
with the top prize for Young Technician of the Year.
Sinead Kelly. Picture courtesy of The Press and Journal Malcolm Webb and David Maxwell at the Oil & Gas UK Awards ‘09
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In its response to the report by theHouse of Commons’ Energy & ClimateChange Committee into the offshore oiland gas sector, the government statedthat it “appreciates the importance ofcompanies’decommissioningobligationsto their investment decisions in theNorthSea.”Acknowledgingthatthetaxregime forms a part of these decisions,the government also noted that theindustry was keen to discuss changesto theregime,particularly in relationtodecommissioning security agreements,statingthatitwouldbe“preparedtoact”iffurtherchangesareappropriate.Inhissecond article following the publicationof the Committee’s report in June, Oil& Gas UK operations and supply chaindirector, Paul Dymond, takes a closerlookatdecommissioningliabilitiesintheUKCS, the effect that securitising theseliabilitieswillhaveonfutureinvestmentsandtherecoveryofhydrocarbonreserves,andthepossiblesolutions.
Thedecommissioningregime
The Department of Energy and Climate Change’s (DECC) evidence to the Select Committee highlights the scale of the decommissioning operation to be undertaken in the UKCS:
“The industry has begun to decommission the 500 installations and 35,000 kilometres of pipelines on the UKCS but with UK oil and gas continuing to supply around 70 per cent of our prime energy demand, decommissioning work will be spread over the next 40 or more years. The cost of this work is currently estimated at £23 billion with individual installations costing from £5m to £300m.”
This work has to be undertaken in accordance with OSPAR Decision 98/3 which bans the disposal of offshore installations at sea other than in exceptional cases. This long-term liability has an impact on current operational and investment decisions. Oil & Gas UK believes the decommissioning regime
within the UKCS is actively working against maximising the recovery of economic hydrocarbons, as was stated at the Select Committee hearings:
“Decommissioning of offshore pipelines and installations is regulated by the Petroleum Act 1998, with the current owners being jointly and severally liable. Whilst companies make full and proper provision for the costs in their accounts […] such provisions are not allowable against taxation, even when put into a special trust fund, and the current regulatory construct is fast becoming a barrier to investment.
Oil & Gas UK has been instrumental in setting up the Decommissioning Security Agreement which identifies the liabilities of parties concerned and how these should be secured against default. However, the government’s position on the types of security, whose use it has encouraged, is not satisfactory.
The government has relied upon the corporate covenants of investment grade
companies and bankers’ letters of credit. The urgent need for a wider range of securities has been particularly exposed by the current banking crisis, with reports of banks disputing annual renewals of securities and limiting the size of security they are willing to post, or even denying it altogether.”
The problem is compounded by the requirement to post securities on a pre-tax basis. This means that the companies have to provide letters-of-credit up front for a sum which includes the amount that the government pledges it will ultimately provide by way of tax relief. This, in turn, unnecessarily reduces the funds a company has available to invest. (The box on the right explains this further.)
Companies need greater flexibility and to get around this issue, Oil & Gas UK has recommended to the government that companies should be allowed the option of using:
corporate guarantees, for the larger investment grade companies; letters-of-credit, on a post-tax basis;accepting that payments made into dedicated trust funds, to be used solely to meet the cost of decommissioning, are a valid and tax deductible business expense.
Discussions with HM Treasury have begun with a view to recognising and taking steps to address the issues facing oil and gas investors, in light of the situation. The importance of making progress on this issue was noted in the conclusions of the Select Committee, which states:
“We note the industry’s argument that the tax treatment of decommissioning securities is problematic and hampering investment. We look forward to the outcome of the consultation the
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government is undertaking on this matter and may return to it if it is not resolved satisfactorily.”
In their response to the Committee’s report, DECC acknowledged the importance of decommissioning obligations and the effect the tax regime has on investment decisions. To some extent this has influenced recent fiscal reforms on ‘change of use’ and relief beyond the licence term. However, government “will consider the points made by stakeholders and will be prepared to act if further changes are appropriate”. So the stage is set!
Infrastructureaccess
The government also noted the level of work that has been going on between it and all parts of industry over the last two years to strengthen the voluntary arrangements and provide more clarity on the approach they would take in the event of a request for terms and conditions under the Petroleum Act. This includes developing guidance to support the code, seminars to raise awareness, senior manager meetings to unlock stalled negotiations and their own individual discussions with operating companies to improve commercial performance. They also acknowledge the increasing complexity arising from dealing with off-spec hydrocarbons and the additional services some new fields require.
In conclusion, although recent surveys have indicated improved preparedness, DECC will continue to work with industry “to provide clarity on DECC’s approach to setting terms and conditions if so requested […] strengthen the voluntary arrangements and address concerns that have been raised.”
Thepracticalissuesofdecommissioningsecurities
One of the important drivers to achieving maximum recovery from existing fields is to encourage asset trading to put the decisions for incremental investments into the hands of companies with an interest in extending production through incremental investment. Often this means a shift of ownership to smaller companies, to whom low levels of production over extended periods is a material business. Most deals off-set the decommissioning liability against the remaining value of this oil production, so the incoming company pays less. It is normal for the outgoing company to ask for securities from the incoming company to cover any potential default in discharging these liabilities, taken on as part of this deal. As the Petroleum legislation allows DECC to reapply the liability back to those companies in the event of any default, these securities are a practical, commercial means to redress this exposure.
At the moment there is only one practical mechanism for providing these securities and that is a bank letter-of-credit (LoC). Unfortunately, the availability of these has been hit by the credit crunch. They also take up a company’s debt capacity, reducing their ability to fund incremental investment in the asset. The cost of borrowing for less robust companies is larger and sometimes requires cash collateralisation, which removes working capital and may restrict operations. LoCs do not best suit all companies, so it is important to develop alternative, practical security mechanisms.
Although all decommissioning expenditure can eventually be offset against PRT and CT/SCT (under current tax legislation), this cannot be realised until actually spent on an approved decommissioning programme. Monies in a trust fund and hypothecated for specific decommissioning projects does not qualify. Indeed, as the trustees are expected to invest prudently to resist inflation, they are subject to inheritance tax at 4 per cent of the capital and income tax at a punitive 50 per cent rate. As this might reduce the amounts set-aside for decommissioning by the time it is needed, the industry is currently working with HM Treasury/HMRC for a more appropriate regime.
However, the most important issue is that a company has to put up securities on a pre-tax basis, i.e. the LoC is for both the company’s share of the final decommissioning costs and for the tax relief they will eventually receive at the end of field life. For a non-PRT paying field this is twice as much as the company will finally pay and for a PRT paying field it is four times as much. Industry is currently working with HM Treasury to address this and, in particular, find a means to reduce the increased burden this creates for the smaller companies to improve access to funds for investment.
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Feature Article
You only need to skip back throughhistory to know that predicting thefutureisimpossible.RemembertheIBMexecutive who reportedly commentedthat the world demand for computerscouldbeashighasfive?OrhowabouttheRomanengineer, JuliusSextusFrontinus–“Jules”tohisfriends,whosaidinA.D.10 that “Inventions have long sincereached their limit, and I see no hopeforfurtherdevelopments?” TheRomanEmpireultimately failed toadapt to thechangingandchallengingnewconditionsandthesamethinghappensinindustry.Nokiausedtobeasupplierofpaperandrubber goods and Suzuki used tomakeweavingmachines.Darwin’sprincipleof“survivalofthemostadaptable”appliestobusinessasmuchasitdoestonature.
The UK oil and gas industry is subject to continually changing evolutionary pressures and has had to adapt to survive. International competition for investment, global swings in the supply-demand balance for hydrocarbons, changing fiscal rules and many other factors have helped to shape the industry we have today. When I joined the industry in 1986, companies like Texaco, Amoco, Britoil, Occidental and Ranger were all big North Sea players. Today we have more operating companies than ever before and many more contractors and suppliers than we had back then.
The relationship between operators and contractors has matured in recent times. In the old days one would exploit the other. It used to be a bit like Basil Fawlty and Manuel - operators would look on contractors as simple, hapless ‘servants’ and contractors viewed operators as ill-informed, eccentric, ‘bullies’. But, as I
say, things have evolved. Today we are more like Richard and Judy – inseparable, strongest as a team and loved by all. Well, at least some.
And the leadership of the industry has been evolving too. UKOOA, the Industry Leadership Team and the Contractors Forum have combined to become Oil & Gas UK. With almost 100 member companies, Oil & Gas UK represents all sectors of the industry and allows us to speak with a common voice on issues critical to our future survival and success. Everyone’s voice carries equal weight.
“It used to be a bit like Basil
Fawlty and Manuel...”
We sit collectively in regular meetings with government to represent a ‘joined-up’ perspective from the industry. We have joint co-chairs for Oil & Gas UK and we are getting better at dealing with issues that impact the wider industry. But the shape of Oil & Gas UK needs to adapt and evolve to be even better suited to the challenges ahead. This is why we are giving the association a new ‘policy directorate’.
This department will specifically focus on the myriad of issues that contractors and suppliers face. After all, they employ most of the people in the industry.
We want to attract more suppliers and contractors to join Oil & Gas UK and they will only join if it is worthwhile. So we need even greater focus on representing the views of the suppliers and stimulating investment that ultimately helps their business plans in the UK and export markets.
Adapting the organisation to meet the changing needs of the industry may not be revolutionary – but it’s certainly evolutionary and most welcomed.
The new directorate – its shape andpurpose
Oil & Gas UK’s new supply chain directorate will increase the association’s ability to promote the UK based offshore oil and gas supply chain and its contribution to the UK economy, address segment related issues and promote good business practices.
It will comprise a team of four: a new supply chain director will be responsible for policy development and strategic direction; he/she will have a dedicated team of three to build upon existing initiatives, co-ordinate specific research and develop new sub-sector focused forums.
Providing a service that develops and supports the compelling story for each of the main individual segments of the supply chain is an important part of this new directorate. Clearly it will need to work alongside and in co-operation with other existing trade associations and provide a distinctive offering
Why are people still being hurt on ouroffshoreinstallationsandonshoresites?Whatstepscanwetaketofurtherreducehuman error? How can we improvemarine safety? What is the key tocontinuoussafetyimprovement?
These are just some of the questions asked around the Step Change in Safety leadership table. Safety is the top priority for everyone involved in the UK oil and gas industry. We work hard to develop and promote safety standards that make a real difference to the people working offshore in the North Sea, one of the most hazardous and demanding environments in the world.
Step Change in Safety is unique, bringing together industry representatives, including the Health and Safety Executive and the trade unions, to improve safety across the upstream oil and gas business. The leadership team meets regularly and I always feel re-energised after these meetings. It is extremely motivating to be part of a group of like-minded people, and I was delighted to accept my new role as co-chair within Step Change. I am passionate about safety and believe leaders in our industry have a key role
to play in raising the bar within their respective companies.
Let’s talk about workforce engagement. You can’t achieve it without face-to-face discussion, which means we have to be seen ‘on site’ and make the effort to talk to people. That personal interaction is hugely important and Step Change in Safety is fully committed to this approach. Through our network meetings and workgroups we can gather the views of safety representatives, site personnel, supervisors and safety professionals. These interactive meetings provide very important ideas and feedback to improve safety. A good example is the introduction of the Minimum Industry Safety Training (MIST) standard. This resulted directly from feedback received from the workforce, who wanted to ensure their colleagues all had the same understanding of safety issues and risk awareness.
As safety leaders we need to be out in the worksite – whether it’s onshore, offshore, in the pipe yard, workshop, wherever. That’s the best way for the workforce to see the senior commitment to safety improvement. Of course we have to provide people with the right tools and the
correct level of understanding of what’s expected in terms of safe behaviour. But perhaps more importantly, we need the full involvement of all those who have a passion for safety. The most powerful safety improvements always come when you have the full buy-in of those on site. On one asset that I have recently been involved with, the crew developed a new observational safety system which has delivered significant improvements. I believe the ownership of that system by the local crew was a major factor in its success.
It is important to recognise outstanding safety performance, and I am particularly pleased that on 21 April 2010, Oil & Gas UK, in conjunction with Step Change in Safety, is introducing its first ever Safety Awards.
The Safety Awards provide an opportunity to recognise and showcase the individuals and companies who are making an outstanding contribution to improving safety within the industry. With award categories such as Safety Representative of the Year, Award for Most Promising Individual and an Award for Safety Leadership, the Safety Awards 2010 will help reinforce the fact that safety is at the top of our agenda.
As co-chairs of Step Change in Safety, Gordon Ballard and I will be selecting and presenting the award for Services to Safety. This will recognise an outstanding contribution by an individual towards the Step Change in Safety vision of making the UK the safest place to work in the worldwide oil and gas industry.
By recognising and rewarding those who are committed to the safety agenda and those who promote a positive safety culture, I believe we can inspire others to follow their lead.
25February:AberdeenBreakfastBriefing-TheActivitySurveyAberdeen Exhibition and Conference Centre, Bridge of Don, Aberdeen, AB23 8BL7.00am - 9.00am
February(datetobeconfirmed):LondonBreakfastBriefing–TheActivitySurveyVenue to be confirmed8.00am – 10.00am
3March:Oil&GasUKDoctors’ConferenceAberdeen Exhibition and Conference Centre, Bridge of Don, Aberdeen, AB23 8BLTimings to be confirmed
21April:TheUKOilandGasIndustrySafetyAwardsThe Marcliffe Hotel and Spa, North Deeside Road, Cults, Aberdeen, AB15 9YA12.00pm - 3.00pm3November:PILOTShareFair12Aberdeen Exhibition and Conference Centre, Bridge of Don, Aberdeen, AB23 8BL7.00am – 4.00pm
4November:Oil&GasUKAwards‘10Aberdeen Exhibition and Conference Centre, Bridge of Don, Aberdeen, AB23 8BL7.00pm – late
A record breaking 750 delegates from across the UK and overseas attended this year’s PILOT Share Fair 11. The sell-out event was held on 4 November 2009 in Aberdeen and boasted over 100 presentations and more than 800 pre-booked, private one-to-one sessions.
Throughout the day, 11 companies presented their business strategies for the North Sea, including upcoming drilling programmes, technology requirements, environment and integrity projects, plans for operations and maintenance, decommissioning and development projects, as well as providing key company contact details.
If your company would like to present at next year’s PILOT Share Fair, please contact the Oil & Gas UK events team on 01224 577250.
THE
UK
OIL
AND GAS INDUSTRY
THE UK OIL AND GAS INDUSTRY SAFETY AWARDS 2010
CALL FOR SAFETY PIONEERS TO SHINE AT INDUSTRY’S SAFETY AWARDS
Oil & Gas UK, in conjunction with Step Change in Safety, is pleased to present the first UK Oil and Gas Industry Safety Awards, acknowledging significant contributions to safety by individuals and companies within the industry.
Awards will be presented in five categories:
• Award for Safety Leadership• Safety Representative of the Year• Award for Preventative Safety Action• Safety Award for Most Promising Individual• Award for Innovation in Safety – Company Award• In addition an award will be presented for Services to Safety – chosen by the Step Change in Safety Chairmen
For further information, visit www.oilandgasuk.co.uk
Nomination forms will be available on our website in January, and the winners will be announced at the UK Oil and Gas Industry Safety Awards lunch on 21 April 2010.
