Companies operating in the UK North Sea need to adapt to make the most of the sector’s potential, according to a new report from Deloitte.
The report “Making the Most of the UKCS” is based on 23 interviews with senior oil and gas executives and investors from 18 organizations between June and October 2014.
Deloitte sought their reaction to Sir Ian Wood’s Maximising Recovery Review. In general, the respondents supported the recent appointment of a new regulator to work with the government and industry.
They also wanted Britain’s HM Treasury to formulate a stable, simple, and internationally competitive fiscal regime reflecting the diverse needs across the UK continental shelf (UKCS); and closer collaboration between companies to help drive efficiency and cut costs related to extraction, with tax incentives and potentially new ownership models to encourage sharing of North Sea infrastructure.
The report also found that drilling activity on the UKCS needs to double to more than 90 wells annually over the next two decades to capitalize on the remaining oil and gas reserves, which have a potential value of $1.3 trillion.
Derek Henderson, senior partner in Deloitte’s Aberdeen office, said: “Only about a third of the known recoverable resources in the UKCS are left. The ‘easy oil’ days are gone and we need a fiscal regime that is more reflective of the current state of the basin. Companies are looking for a tax system which is simple to navigate, stable over the longer-term, incentivizes investment, and is competitive by international standards.”
Geoff Gibbons, oil and gas consulting partner at Deloitte, added that the industry could not afford to sit and wait for the new regulator to drive change. Respondents pointed out that many of the measures required have been known for some time and there is skepticism that real change will follow.
However, “if the industry can achieve all of the steps outlined by the Wood Review in time,” Gibbons said, “this shift could help make the most of the remaining resource on the UKCS through maximizing volumes, economic extraction and eventually effective decommissioning.”