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An aerial view of Nexen’s Golden Eagle offshore drilling platform in the North Sea about 70 kilometres northeast of Aberdeen, Scotland. (NEXEN)
An aerial view of Nexen’s Golden Eagle offshore drilling platform in the North Sea about 70 kilometres northeast of Aberdeen, Scotland. (NEXEN)

Twilight in the North Sea: The push to revive a fading oil source Add to ...

There is plenty of oil left in the UKCS – the industry estimates as much as 24 billion barrels of recoverable reserves, compared with 42 billion barrels that have been produced since 1970, when Royal Dutch Shell PLC and BP PLC pioneered the offshore industry.

“The big message is the death of the North Sea is completely exaggerated. We’re only two-thirds through the story,” Energy Minister Michael Fallon said in an interview at his Whitehall office.

But much of that oil and gas is situated in harder-to-develop fields – sometimes smaller ones, sometimes at greater depths, or further from shore, often under high pressure and high temperature conditions or needing enhanced oil recovery techniques. That all means higher costs.

To produce it profitably, both industry and government need to rethink the business, Mr. Fallon said.

The government has committed to act on key recommendations of the Wood Review, which called for a better-resourced regulator whose job it would be to maximize recovery from the fields.

“We need a new approach that is more collaborative than the existing regime,” said Mr. Fallon, who travelled to Calgary last month and met industry leaders such as CNRL’s Murray Edwards and Nexen’s Fang Zhi.

The new regulatory model now being implemented “invites operators to develop hubs, share infrastructure, work on reducing delays and provides a more hands-on approach to license management,” he said. “What is fascinating about this is the degree to which industry has signed on to this. They see their own interest in maximizing recovery in the North Sea.”

It helped that the recommendations came from Sir Ian Wood, an industry leader who made his fortune servicing the international oil companies that converged on his hometown of Aberdeen as the North Sea industry boomed.

Armed with a psychology degree from Aberdeen University, Sir Ian in 1964 joined his family’s ship repair and marine engineering business that serviced the fishing fleet. Made managing director three years later, he quickly began expanding into general marine servicing.

His timing couldn’t have been better. In 1969, Amoco discovered the Montrose field, 200 kilometres east of Aberdeen. The following year, BP struck oil at the Forties Field, and then Shell discovered the giant Brent field east of Shetland.

From its origins in the fishing industry, the Wood Group is now an international oil servicing giant, with 40,000 employees in 50 countries, including all the major offshore basins.

Its long-serving chairman retired from Wood Group two years ago, and agreed to lead a review of an industry that was clearly heading for crisis, despite the short-term investment boom that will stem the production declines for a couple of years.

A new industry model

One of the fundamental problems in the U.K. North Sea is that companies are now operating some 300 fields, and many of the new ones are fairly small in scale. As a result, companies need to share infrastructure such as the pipelines to bring the oil and gas to shore and subsea processing units. That cumbersome system – as well as a lack of investment in aging equipment until recently – has resulted in a 25-per-cent decline over the decade in production efficiency, or the amount of time crews and equipment are actually working.

In an interview in his Aberdeen office, the retired executive said there is plenty of opportunity left in the U.K. North Sea.

The improved business practices and regulatory oversight recommended in his report could boost production by as much as four billion barrels over the next 20 years – or an average of roughly 500,000 barrels a day.

“The implementation has come from the industry itself,” he said. “Collaboration is the way ahead for a significant number of issues and problems. The key question is will they actually collaborate.”

The industry has largely endorsed the new model, said Malcolm Webb, chief executive officer of the industry’s association and lobbying arm, Oil & Gas UK. But just as important – if not more so – is the government’s commitment to reform the fiscal regime.

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