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Government commissions independent analysis of how to maximise oil and gas production

Out-Law News | 10 Jun 2013 | 5:09 pm | 2 min. read

The Government has asked the former head of a leading oil services company to look at ways to maximise the recovery of the remaining oil and gas supplies from the UK Continental Shelf (UKCS).

The project will be the first review of UKCS oil and gas production for 20 years, the Government said. It will be led by Sir Ian Wood, who retired as chairman of Aberdeenshire firm The Wood Group last year.

"Although investment levels are rising strongly, the UKCS is one of the most mature basins in the world and therefore faces unprecedented challenges," said Energy Secretary Ed Davey.

"Our offshore infrastructure is getting older, and we are seeing a decline in the rate of exploration and in the amount of oil and gas that is being recovered. All these issues need to be addressed if we are to stimulate innovation in this sector and see maximum economic benefit for the UK in the decades ahead," he said.

In a written ministerial statement, Davey described the role played by the UK oil and gas industry as "vital". The sector supports 444,000 jobs and paid £11.2 billion in direct taxes in 2011-12 – almost a quarter of the total corporation tax received by the Exchequer in that financial year, according to Government figures. Investment in the UKCS has also continued to increase in recent years, with total investment for 2013 predicted to reach up to £14bn.

Although "peak production" was now behind the UKCS with 41bn barrels of oil and gas already produced, at least 20bn more barrels could still be produced if the industry "maintained momentum", Davey said. In addition to its economic benefits, continuing oil and gas production was vital to the continuing security of the UK's energy supplies, he said.

Areas to be considered by the review will include the licensing regime, optimising the use of and extending the life of infrastructure, production efficiency, cross-industry collaboration, increasing exploration efforts and maximising the use of enhanced oil recovery techniques, Davey said. It will also consider the current structure, scale and effectiveness of the Government's stewardship regime given the increased technical and commercial complexities of the market, he said.

The review is not expected to make recommendations on taxation, an area in which there have been several changes since 2011, as it was "too soon" to determine whether these had had any impact, Davey said. However, the Treasury may draw upon Wood's conclusions when making future tax policy decisions, he said. Recent tax changes have included the introduction of Decommissioning Relief Deeds to give businesses certainty over the tax relief that they will receive when decommissioning their assets; and new allowances for operators in small fields, large shallow-water gas fields, older 'brown field' sites and certain unexplored fields in the north west of Scotland.

Energy law expert Bob Ruddiman of Pinsent Masons, the law firm behind Out-Law.com, said that the review presented a "massive opportunity" to consider how best to maximise returns from the UKCS for both the country and taxpayers. He welcomed the Government's "harnessing" of Wood's "significant expertise" in offshore oil and gas.

Wood is expected to publish interim conclusions from his work this autumn, with the final report and recommendations due to follow in early 2014, the Government said.