Britain's offshore oil and gas industry could have a new regulator in place toward the end of this year.

The new independent industry regulator would be formed to take over many of the functions performed by the existing regulator, the Department of Energy and Climate Change (DECC), with the task of with delivering a coherent strategy for maximizing economic recovery from oil and gas on the U.K. Continental Shelf (UKCS).

This new body, part of the MER (Maximizing Economic Recovery) U.K. strategy proposed earlier this year by North Sea veteran Ian Wood, already has received broad support from the government and the offshore industry, and could realize recovery of between 12 Bboe and 24 Bboe on the UKCS, he claims.

Moves are underway to create the new regulator, industry executives were told during an update by Wood on the proposals in London, the author of the final report concluding his review.

Wood, the retired chairman of Wood Group, outlined how much progress is being made toward the creation of the new-look regulator. “People in government will say ‘We are going very fast,’ he said. “DECC is squarely behind it.” He added that U.K. Secretary of State Ed Davey “is very supportive. We have got the Treasury onside. There is an internal advisory panel to DECC. The treasury is cooperating.”

The Wood Review, first unveiled earlier this year, recommended the creation of an “arm’s length” but stronger regulator, which will seek to manage offshore licensing, and oversee exploration, development and production while also trying to maximize recovery of remaining reserves from the UKCS. It also will encourage collaboration between companies to ensure that maximum value is extracted from those remaining reserves.

This new regulator also will be tasked with resolving conflict between operators, after the review identified a “lack of collaboration and overzealous legal and commercial behavior between operators,” which the report says has contributed to increasing costs in the North Sea.

Development of smaller, marginal fields—which need access to processing and exploration infrastructure—is being stalled by the amount of contractual and commercial disputes, it stated.

Wood challenged legal and commercial specialists in his London audience to work harder to come up with better solutions to solve these disputes. “The Scottish legal fraternity have got together to see what they can do, and that is happening here too,” he said, referring to oil and gas lawyers in London.

Originally, he presented his review of the U.K. offshore sector in February, after being appointed in June 2013 to examine the industry by Davey.

He was speaking in London in an event alongside Malcolm Webb, chief executive of Oil and Gas U.K., which represents U.K. oil and gas operators.

Wood admitted the new regulator he has outlined will be similar to the Norwegian Petroleum Directorate. “It will not be far away from that,” he said.

Pace

Defining the structure of the new regulator is slowing the pace of change, he admitted.

“That is taking time. The appointment of a chief executive....that is really important,” he emphasized. Once the new chief is in place, he said that person would be able to a team and start to move forward. “I hope by the end of this year we will begin to see a real change and some impact.”

Already, DECC is looking for the right person to lead the regulator, and a ‘shadow regulator’ will begin to operate by end of the year.

One of the factors behind the proposed new regulator is that—as the Wood Review reveals—DECC is struggling to cope with its workload. During the last 20 years, the number of administrative and skilled personnel working in DECC in oil and gas regulation has dropped from about 90 in the early 1990s when there were about 90 fields in production to about 300 fields in production now. However, there are only about 50 personnel working for the regulator “on more complex licensing and stewardship issues,” he said.

Conversely, the Norwegian Petroleum Directorate has 200 personnel doing a similar job with fewer fields and operators, while Energie Beheer Nederland, the Dutch offshore regulator, has about 70 personnel, supplemented by consultants, the Wood Review stated. On this point, the report continues, “The review has heard consistent praise for the performance of the present DECC staff, but it was the overwhelming view from the evidence received that the regulator is now significantly under-resourced and under-powered to effectively manage the increasingly complex UKCS. The regulator is effectively limited to tackling the most immediate and pressing issues.”

Assuming the new regulatory body is created, DECC will still have some functions related to oil and gas to perform—dealing with suspended well and decommissioning security arrangements. But the government department is already moving toward the creation of the new organization.

In his report, which is primarily concerned with future stewardship of resources on the UKCS, Wood outlined the need for a tripartite strategy involving government, the U.K. Treasury and the offshore industry. His proposals for the new regulator would give it the power to encourage operators to work toward the aims of MER U.K. The regulator will have power to resolve disputes among license holding consortia and be able to issues sanctions, including issuing public formal warnings, suspend or even terminate licenses. To facilitate implementation of the MER U.K. strategy, the regulator will have the power to attend consortia operational and technical meetings where key development decisions are discussed.

Change

Underlying the report is the changing face of the U.K.'s North Sea industry and the challenges it faces. “The challenges have changed over the years,” Wood said. “Back in 1999-2000, oil was US $9/bbl. But there are new challenges. We currently have very high capital expenditure of $22.4 billion (£14 billion) last year, but all the signs are that that amount will be at least half in the next few years as the next few big projects work their way through.”

Wood’s report also points out that production efficiency is falling fast—by about 38% in the last three years.

Most new field discoveries are considerably smaller—the average discovery on the UKCS has been below 25 MMboe over the last decade. Wood said less than 150 MMboe has been discovered in the last two years, far below the DECC target of 6 Bboe. Of the fields currently in production, 90% produce less than 15,000 boe/d.

Since the start of North Sea exploration, 42 Bboe has been produced. The Wood Review suggests another 12 Bboe to 24 Bboe could still be produced from remaining reserves, “in a large part dependent on how well the U.K. manages the overall development of its remaining resources.”

Davey is expected to provide a formal government response to the Wood Review soon, possibly by the end of this month, Wood suggested.

The image on the home page is courtesy of BP.

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