A report commissioned by the Department of Energy and Climate Change (DECC) into the future of North Sea oil makes it plain that politicians will have a key role in ensuring that the UK manages to wring every last drop out of our remaining reserves. The report, which was produced by Sir Ian Wood, founder of the eponymous oil services provider, emphasises the importance of pursuing an increasingly collaborative approach to tap what's left in the UK Continental Shelf (UKCS). This will involve not only rival oil & gas explorers, but also industry regulators and HM Treasury.
The North Sea has already provided the UK with around 41bn barrels of oil equivalent (boe) since the modern phase of exploration kicked off in the mid-1960s, but it's estimated that the UKCS could still give up anything between 12bn and 24bn boe due to the latest advances in appraisal and drilling technologies. According to Sir Ian, the effective implementation of the key recommendations within the report would deliver a bare minimum of 3-4bn additional boe over the next 20 years, worth around £200bn to the UK economy at current prices.
The energy minister, Ed Davey, shouldn't have much trouble convincing his cabinet colleagues to back Sir Ian's proposals given that the North Sea accounted for 15 per cent of UK corporate tax receipts through the 2012-13 fiscal period, despite a slump in output. In fact, the report points out that the 38 per cent fall in UKCS production over the past three years has cost HM Treasury an estimated £6bn in lost tax receipts. Add to that the fact that the industry also supports around 450,000 jobs, while contributing £39bn towards our balance of payments figures, and there's no shortage of commercial incentives for government to act on the findings.
Perhaps the central recommendation of the report is that any enhanced recovery programme should be under the auspices of a new "arms length" regulatory body, which would replace the "significantly under-resourced and under-powered" division of the DECC that is currently responsible for North Sea oil. It's felt that the new industry regulator would provide oversight of the industry with an enhanced commercial emphasis.
