news and informa�on from Oil & Gas UK issue 12 | mar 2010

in this issue W

Overcoming challenges – the right course for the oil and gas supply chainOil & Gas UK’s new supply chain director shares his thoughts with Wireline

2010 Ac�vity Survey: the industry at a crossroadsMike Tholen reveals the prospects for the UK con�nental shelf in the shape of new forecasts for explora�on, investment and produc�on

Policies for success Oil & Gas UK takes the message to government

Rewarding best safety practice

Judith Hackitt CBE on motivation, recognition and engagement

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ContentsWelcomeThis is the first Wireline of 2010 and in it we reflect much of what will be at the fore of the Oil & Gas UK business agenda for the coming year. Safety will continue to be a dominant theme, not just in the run up to the new UK Oil & Gas Industry Safety Awards in April but also in the work being done in our Safety Forum, in Step Change in Safety and the Helicopter Task Group. The tone is set here by Judith Hackitt CBE, chair of the Health and Safety Executive, who will deliver the industry’s inaugural Safety Lecture at next month’s awards ceremony but who also takes time out to share with Wireline her views on the need to keep a firm focus on offshore safety and to create a safety culture which engages the workforce and rewards positive contribution.

The messages we will take to government this general election year are also featured in this edition – highlighted in Mike Tholen’s article on the findings of the 2010 Oil & Gas UK Activity Survey and in Policies for Success, a review of the framework of policies we have just published and which we believe will help set the right course for this industry’s future. Both these documents will provide an important foundation for our lobbying activities this year, both before and after polling day.

A key aspect of the story we have to tell is that of the largely unsung and under-acknowledged achievements of the UK’s important oil and gas supply chain. At the start of the year, Oil & Gas UK established its Supply Chain Directorate headed by Brian Kinkead who joins the association with three decades of experience in the upstream oil and gas industry, primarily with Halliburton. On page 10, we introduce Brian by inviting him to set out his thoughts on how he intends to beat the drum for the UKCS’ world class supply chain capability.

And finally, please do take a moment to look at our revamped website (www.oilandgasuk.co.uk). We’ve redesigned it to be much more user friendly with easier navigation around the pages to help you find the information you need about Oil & Gas UK’s activities. An update of our members area is now in hand and we hope you will see more big improvements there later in the year.

TrishaO’Reilly CommunicationsDirector

Wireline is published by Oil & Gas UK, the leading representative organisation for the UK offshore oil and gas industry. Oil & Gas UK’s members are companies licensed by the government to explore for and produce oil and gas in UK waters and those who form any part of the industry’s supply chain.

We want to hear your views on our newsletter so please send us your feedback as well as ideas for future articles.

Contact: Britta Hallbauer in the Oil & Gas UK communications directorate Email: bhallbauer@oilandgasuk.co.uk Tel: 01224 577331

NEWS

PuttingskillsontopoftheagendaOPITO – The Oil & Gas Academy is strengthening links with industryUpdatedhealthandsafetyguidelinesNew guidelines on collision avoidance and emergency response LastingtributesforNorthSeaFlight85NMemorial to be erected in Johnston GardensNewfaceatLOGICSolicitor joins LOGIC team

THEVIEW

Storageisnotthewholeanswer David Odling looks at the implications of recent Gas Balancing Alerts

PARLIAMENTARYUPDATE

KeepinganeyeoncarbonemissionsOutcome of the Copenhagen Climate Change ConferencePreparingforthegeneralelectionAn update on Oil & Gas UK’s political engagement

FEATUREARTICLES

PLBsreintroducedonNorthSeaflightsJessica Burton reflects on the challenges of reintroducing the safety devices 2010ActivitySurvey:theindustryatacrossroadsMike Tholen reveals the prospects for the UKCS in the shape of new forecasts for exploration, investment and productionOvercomingchallenges–therightcoursefortheoilandgassupplychainOil & Gas UK’s new supply chain director shares his thoughts with Wireline InvestmentinresearchvitalforlongtermsuccessHow the NSRI can help unlock subsea potential Policiesforsuccess Oil & Gas UK takes the message to governmentInthespotlight:interviewwithJudithHackittCBEThe chair of the HSE calls on industry to keep focus on safety

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Wireline | issue 1� | Mar �010

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News

InabidtotightenthelinksbetweenOPITO–TheOil&GasAcademyandthewiderindustry,anewskillsgroupwassetuplastmonthwiththeaimofdevelopingaclear,collectivepictureof the industry’s current skills andworkforce developmentissues, priorities and challenges as well as the factors thatwillhaveanimpactonitsfutureskillsrequirements.Thenewskillsforum,whichisrunbytheAcademyincloserelationshipwithOil&GasUK, replaces theexistingOil&GasUKskillsforum.

Commenting on the importance of bringing the former Oil & Gas UK skills forum into the Academy, chief executive David Doig, said: “Throughout 2009, the value of the Academy has become clearly evident. Using the Academy as the industry’s skills delivery mechanism, much has been achieved in a relatively short period. Not only has the industry maintained its skills investment at around £11 million per annum, during what can only be described as an economically challenging period, but it has extended the voice of the industry further

than ever before. The industry is now better represented and understood within education and government decision making structures and actively contributes to the strategic debate on skills and workforce development. Moving the skills forum to the Academy means that the industry is collectively represented and effectively engaged with all existing and emerging stakeholders. It also ensures that those issues that affect the industry’s skills agenda are brought to the Academy’s attention and enables us to develop targeted strategies to support the industry.”

Oil & Gas UK will continue to participate in the forum and asks all its members to support the group by sending along a suitably senior representative with HR, operations or skills and training backgrounds. ForfurtherinformationpleasecontactJessicaBurtononjburton@oilandgasuk.co.uk

Oil&GasUKhasupdatedtwokeyhealthand safety related guidelines. Therevisionsreflectthecurrentbestpracticeinshipinstallationcollisionavoidanceandcompetence and training in emergencyresponse.

The updated Guidelines for ShipInstallationCollisionAvoidance have been developed with input from the Health and Safety Executive and other stakeholders. An update from the 2003 version, the document offers guidance on reducing the probability of collisions between vessels and offshore installations and also offers guidance on effective response if such a collision does occur.

Changes made in the new version include improvements in surveillance methods, particularly radar coverage, updated collision data which includes a number of significant collision incidents in the UK sector and elsewhere, and a summary of the main principles of the guidance to make it more user friendly and accessible to the non-specialist.

Also published this month is an updated version of the Competence and TraininginEmergencyResponseGuidelines which describe how competence in emergency response can be developed, demonstrated and maintained for all persons who travel to, and work on, offshore installations. They identify the link between the competence of individuals to the installation Safety

Oil&GasUKupdatescollisionavoidance

andemergencyresponseguidelines

Case and the Emergency Response Plan as required under the Offshore Installations (Prevention of Fire and Explosion, and Emergency Response) Regulations 1995.

The updated guidelines are available inthepublicationssectionoftheOil&GasUK website (www.oilandgasuk.co.uk)andalsoontheassociation’sextranetformembersonly.

OPITO-TheOil&GasAcademystrengthensindustrylinks

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LastingtributesforNorthSeaFlight85N News

Lasting tributes to the men who losttheir lives on North Sea Flight 85N lastApril are now in place following theannouncementofdonationsworthover£330,000toarangeofcharitablecausesfromthememorialtrustfundsetupafterthetragedy.

The money has been distributed to 11 charities chosen by the 16 families whose loved ones died on the helicopter as it was returning to Aberdeen on 1 April 2009.

The charities chosen by the families are the RNLI, CLAN (the Aberdeen-based cancer charity), Create (the Aberdeen-based learning disabilities charity), Cancer Research, Alzheimer Scotland, Help for Heroes, Jump for Heroes, Alder Hey Children’s Hospital, St Richards Hospice in

Worcester, West Midlands Air Ambulance Service and the Oil Chaplaincy Trust.

A further sum of money has been set aside to pay for a memorial in the form of a black granite obelisk to be placed in Johnston Gardens, off Viewfield Road, Aberdeen. The work is now underway and should be completed by mid to late March. The fund committee is also looking to find a permanent home for the book of condolences which was opened following the tragic events of 1 April 2009.

Malcolm Webb, chief executive of Oil & Gas UK and chairman of the Flight 85N memorial fund committee, said: “The obelisk has been paid for by the Memorial Fund from the donations it received following last April’s tragic event. We

SolicitorRossMcKenziehasjoinedOil&GasUKtoprovidecoverforLOGIC’slong-servingbusinessadvisorPiaMandlerwholeftlast month on maternity leave. Ross will be responsible formanagingtheefficiencyenhancingservicesLOGICprovidestotheindustry, includingthe IndustryMutualHoldHarmless (IMHH)Deed,theCRINE/LOGICstandardcontracts,thehelicopterflightsharingarrangementsandtheMasterDeed.

It is seven years since the Master Deed was created under the umbrella of PILOT to save time, effort and costs in UKCS licence and asset trading deals. At the time an initial 179 licensees signed up to the deed. A further 95 licensees have since joined the scheme, which now encompasses virtually all active licensees on the UK continental shelf. More than 800 execution deeds have been signed under the deed, and the majority of UKCS transactions are now completed in this way.

LOGIC, which is responsible for executing, registering and storing the deeds, became a wholly owned subsidiary of Oil & Gas UK in 2005. It is also responsible for Vantage PoB, which is managed under separate arrangements. This is an important multi-client, low cost service which supports workforce movement and competency tracking across much of the UKCS and the

Netherlands offshore operations. The LOGIC Board has recently been expanded to include a broader representation from the members of the Vantage PoB scheme.

ForfurtherinformationaboutLOGICoranyofitsservices,pleasecontactRossMcKenzieatrmckenzie@oilandgasuk.co.uk

believe that Johnston Gardens, with its mature flowers, trees and waterfalls, is an appropriate place for the memorial which can be visited for quiet contemplation and private remembrance. The obelisk itself has been designed to be in keeping with the scale and character of the garden.” Membersofthepublicwhostillwishtomake a donation to thememorial fundcanfinddetails of thepaymentoptionson the Oil & Gas UK website at www.oilandgasuk.co.uk/issues/heli_fund.cfm

Ross’Logicalmove!

RossMcKenzie,businessadvisor-LOGIC

Wireline | issue 1� | Mar �010

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The View

HavingwrittenaboutgasintheprevioustwoeditionsofWireline,Ididnotexpecttobewritingagainsosoon.However,gashasonceagainhittheheadlines,thistimebecauseofverycoldweatherattheendof 2009 and beginning of 2010, causingdemand in this country to peak at 455millioncubicmetres(mcm)on7January,analltimehigh,andimmediatelytoppedby 468mcm the following day. Duringthis period, National Grid which runsthehighpressureNationalTransmissionSystem, themotorway network for gas,issued several Gas Balancing Alerts, anamewhich looks alarming, butwhich,inessence,isasignaltothemarketthatmore gas may be required to keep upwithdemand.

In each case, the market did respond and supplied more gas. This was interesting, because on two occasions some large industrial users of gas had their supplies interrupted. All of the affected companies have “interruptible” contracts, meaning that their supply can be interrupted if necessary, in return for which they pay lower prices; this is a common feature in many gas markets and is a sensible way in which to manage demand when necessary. Importantly, though, these interruptions were geographically specific and were actually caused by an inability to move enough gas through certain low pressure distribution networks to meet local demand. Households and smaller commercial customers are always given preference over clients with interruptible contracts who may well be able to switch to alternative fuels for the duration (various

gas fired power stations have liquid back-up fuel for example). Contrary to various media reports, therefore, there was not an overall shortage of gas, but difficulties regarding delivery to certain distribution zones.

The one weakness in our system of supply remains storage, as mentioned previously and in our Economic Report for 2009. We ought to have had more by now, but various projects have been badly delayed over several years by planning difficulties and subsequently a lack of finance. And we are going to need more in future, as our own production from the UK’s continental shelf declines. However, comparisons with the situation in France and Germany do require closer scrutiny. Storage is just one component of security of gas supply,

alongside domestic production, pipeline and LNG imports and demand reductions; all need to be considered in combination. We are not as import dependent and have far more diverse supplies of gas than either France or Germany. Storage should

never be the sole measure, nor could it be. It is physically impossible to withdraw gas from storage fast enough to satisfy total demand. For example, our largest store of gas, the Rough offshore field, starting full, takes some 80 days to empty at its maximum rate of discharge. Equally, it takes a long time to be restocked. Other storage sites, small former oil/gas fields onshore and specially created salt caverns, hold a lot less gas, but can be discharged and refilled much more quickly. Between Christmas and New Year, for example, and even during the second half of January with lower demand, partial restocking of these took place (this can all be seen on National Grid’s website).

All this emphasises, though, that the over-riding importance for our security of supply is the recovery of our own gas (and oil) resources to the maximum economic extent. Here, the latest news from HM Treasury about West of Shetland is most encouraging. There is no gas export infrastructure in this area of our continental shelf yet. The investment required is very large. Some £2 billion to develop the Laggan and Tormore fields and related processing facilities and pipelines will be needed to deliver the gas to the St Fergus terminal on the Scottish east coast mainland. Let us hope that the tax relief offered is enough to cause the partners in these fields to approve the investment, with its beneficial implications for jobs, technology, gas supplies and, ultimately, tax revenues. The new infrastructure will also be a significant help for the development of future fields in that area.

StorageisnotthewholeanswerbyDavidOdlingenergypolicymanagerOil&GasUK

“Storageisjustonecomponentofsecurityofgassupply,alongsidedomesticproduction,pipelineandLNGimportsanddemandreductions;allneedtobeconsideredincombination.”

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Parliamentary Update

In December 2009, world leaders metin Copenhagen for the Conference ofthe Parties’ (COP 15) United NationsFramework Convention on ClimateChange(UNFCCC).Thegoalwastodecideon a successor agreement to the KyotoProtocol on greenhouse gas reductiontargets.

Though the summit resulted in the signing of a new ‘Copenhagen Accord’, most observers concluded that the agreement did not go far enough. The EU had sought to take a lead role during negotiations, but in the end, the Accord was brokered by a group of five nations including the US, Brazil, South Africa, China and India, with EU leaders left on the sidelines. The final agreement simply states that deep cuts in global emissions will be required and that

Aspartofitselectionpreparations,Oil&GasUKlaunched‘PromotingSuccess–apolicy framework for the UK’s OffshoreOilandGasIndustry’atalunchwithMPsandPeersatWestminsteron2February.Thenewreportcontainskeymessagesforthenextgenerationofpoliticiansandwillbeusedextensively tobriefprospectiveparliamentary candidates (PPCs) in therunuptotheelection(seearticleonpage12/13)

With the Budget now rumoured to be taking place on 24 March, it is widely expected that the election will take place on 6 May to coincide with local elections but nothing is confirmed yet. Anyone visiting Westminster or dealing with politicians on a regular basis can see how local campaigning has

parties to the agreement will enhance their long-term cooperative action to combat climate change in order to limit the increase in global temperature below 2°C. Crucially however, the Accord did not include any legally binding agreement on greenhouse gas abatement targets.

The outcome was watched closely by industry because, in the case of a successful international agreement at the summit, the EU had committed to amending its target for CO2 emissions cuts from the agreed level of 20 per cent by 2020 to a new, more ambitious cut of 30 per cent by 2020; a move which would surely have implications for the oil and gas industry. Given the non-legally binding nature of the Accord and the lack of legal

commitments from other countries, EU member states currently seem divided on whether moving to a 30 per cent cut would, at this stage, prove premature. Recently the EU has reaffirmed its commitment to move to the more ambitious target, on the condition that other countries also raise their ambitions. In particular, all eyes will be on the US and whether the Climate Bill will be successfully concluded there this year. What seems likely is that the Copenhagen Accord will be used as a basis for discussion at the next high-level UN conference on climate change (COP 16) in Mexico at the end of 2010.

Oil & Gas UK will continue to closely monitor energy and climate change policy developments at EU level during 2010.

OutcomeoftheCopenhagenClimateChangeConference

Preparingforthegeneralelection

started already and high profile ministerial visits to Aberdeen have continued recently with the Liberal Democrat’s Shadow Secretary of State for Energy and Climate Change, Simon Hughes MP, on 12 February and the Conservative’s Shadow Secretary of State for Energy and Climate Change, Greg Clark MP, on 2 March. These visits are an ideal opportunity for the industry

to showcase its high technology capability and to reinforce key messages about what the industry requires from legislators to ensure a secure and productive future.

The Oil & Gas All Party Group continued its busy agenda with a briefing on Canadian Oil Sands by Shell on 23 February, a lunch with Norwegian MPs on 24 February and

a site visit to the Longannet Power Station in Fife to see their CCS demonstration on 25 February.

Cross Party activity at the Scottish Parliament centres around the annual reception on 17 March and it is hoped that this will get a good turn out from politicians and industry representatives.

From left to right: Sir Robert Smith MP, Paul Dymond, Simon Hughes MP, Brian Kinkead

Wireline | issue 1� | Mar �010

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Followingninemonthsofintensivepan-industry negotiations, personal locatorbeacons were reintroduced for theoffshoreworkforceon8February2010.

The beacons, which were being carried by some passengers on offshore helicopter flights to oil and gas installations, were withdrawn from service in the UK in March 2009 following the ditching of flight 88J the previous month. It was found that interference from the personal beacons had activated the ‘smart’ function in the long-range beacons on the life rafts and caused them to power down. Due to the technical nature of the issue, the reintroduction of PLBs has been a long and complex process which has involved close cooperation between Oil & Gas UK, the CAA, the helicopter operators, search and rescue services and the wider industry.

TechnicalaspectsTwo key conditions had to be met before PLBs could once again be safely used in UK waters. Firstly, the smart beacons on the helicopter life rafts needed to be replaced with non-smart technology, and secondly it had to be shown that PLBs would not be activated inadvertently during normal operations or interfere with aircraft equipment. This involved rigorous testing of the PLB equipment and an analysis of how the beacon interfaces with each type of aircraft used in the UKCS. A number of pool, air and sea trials were also carried out to ensure the selected PLBs met the necessary performance standards.

The two beacons that met all the required standards are the Sea Marshall AU9-HT and the Rhotheta RT-B77. These beacons have now received compliance certificates from the CAA allowing them to be carried on board all flights with the three major UK helicopter operators.

TrainingAn important part of the reintroduction process was ensuring the workforce understood how the beacons worked and the importance of not tampering or activating them in flight. A training DVD was produced to address these issues, as well as to explain how the life raft beacons were activated in the event of a ditching. The DVD has been distributed to every offshore installation, onshore heliport, the BOSIET training centres and will be screened to all passengers on every flight during an initial six week roll out period. Following that, the Vantage system will be used to flag up any individuals who have not seen the DVD when they check in at the heliport.

A guidance document has also been issued to the marine and aviation sectors to ensure that search and rescue crews are able to readily identify all beacons in use on UKCS aircraft and know how to switch them off in a rescue situation.

ReintroductionThe reintroduction of PLBs was carried out in a phased approach by location or

‘hub’. This was identified as the quickest and most efficient way of getting the PLBs reintroduced to as many in the workforce as possible, given the manufacturing constraints for the two selected PLB types.

The roll out started on 8 February in Aberdeen, followed by the Southern North Sea heliports and then Scatsta in the Shetland Islands on consecutive weekends.

LookingtothefutureAs part of its support for the reintroduction of PLBs to the North Sea, the Helicopter Task Group recommended that this be adopted as mandatory safety equipment across the UKCS. This recommendation was supported by the Board of Oil & Gas UK as well as the Step Change in Safety Leadership Team, and has now been agreed by the industry. Although the vast majority of the industry will be covered by the initial roll out in February, those few remaining companies not currently using PLBs will be moving towards their use over the coming months.

The adoption of PLBs across the industry presents a significant improvement to the safety of all workers travelling offshore in the UK and is a testament to the cooperation and dedication of many parties across the offshore and aviation industries.

PLBsreintroducedonNorthSeaflights

Feature Article

Inthisarticle,JessicaBurton,health,safetyandemploymentissuesmanagerwithOil&GasUK, looks at the recent reintroductionofpersonallocatorbeaconsandreflectsonthechallengesthathadtobeovercometoallowasuccessfulreintroduction.

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Feature Article

In many ways, today’s operating

environment is very different from that

experiencedwhenOil&GasUK’sactivity

forecasts were last revealed, twelve

monthsago.

As described elsewhere in this issue of

Wireline, there has been a marked increase

in the public recognition given by the

government to the industry’s important

contribution to the economy and energy

supply. After a period of low commodity

prices in 2009, we now see oil, if not gas,

prices rebounding. Significant efforts have

been made by companies to keep a handle

on the extreme cost inflation seen in the

last few years.

However, in other ways the ever-present

challenges of maturity persist and even

grow. After four decades of drilling, the

average discovery size is now one tenth

of that seen in the first ten years of

exploration and wells are not being drilled

at the rate which would allow the steady

flow of new projects to come onstream

required to sustain infrastructure. Above

all, despite producers succeeding in

holding down unit operating costs of

existing projects, overall costs, including

those of potential new projects, are still

significantly higher than in less mature

provinces around the world.

Here we take a look at how these

challenges are manifesting themselves

in our forecasts for investment in new

projects, production and exploration.

Certainly, the 2010 survey underlines the

significant barriers we face in securing

production but also offers a taste of the

sizeable future opportunity.

Proven reserves within existing fields and

sanctioned investments declined to 5.25

billion barrels at the start of this year, a

result of the slowdown in investment over

recent years. These sanctioned projects

have already secured £10 billion of

investment. However, when probable and

possible reserves are considered, the total

rises to 11.1 billion barrels, an increase of

15 per cent on 2008. These potential new

projects demand a staggering £50 billion

of investment, half of which is required

in the next five years if the infrastructure

these projects will need is to be saved

from decommissioning.

If investment can be sustained above £5

billion per year, the UKCS could still be

delivering 1.5 million barrels of oil and

gas per day in 2020, enough to satisfy half

of total UK demand. This is of strategic

importance to the UK economy. The

2010ActivitySurvey:theindustryatacrossroads

MikeTholen,Oil&GasUK’seconomicsdirector,revealstheprospectsfortheUKcontinentalshelf(UKCS)intheshapeofnewforecastsforexploration,investmentandproduction.

“...the2010surveyunderlinesthesignificantbarrierswefaceinsecuringproductionbutalsooffersatasteofthesizeablefutureopportunity.”

Wireline | issue 1� | Mar �010

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government forecasts that the UK will still

rely on oil and gas for 70 per cent of its

energy needs in 2020.

The short-term outlook for investment is

positive; in 2009, capital spending hit the

top end of expectations at £4.7 billion and

in 2010 could rise above £5 billion. We

have seen a slowdown in new projects

coming onstream in recent years and this

capital injection would increase the speed

with which new fields are taken from the

‘potential’ to ‘producing’ status.

One concern among these positive signs

though, is that it is the mature fields,

particularly those subject to Petroleum

Revenue Tax, which are struggling

to secure additional investment. It is

precisely these fields that need to be

kept in production as their associated

infrastructure and the existing platforms

and pipelines, will be required to reach

and produce the untapped reserves of the

UKCS. Continuing uncertainty on whether

future governments will honour their

commitment regarding decommissioning

tax relief also continues to depress

investment in these fields.

Another concern is that while increases

in operating costs for existing production

have, for the moment, ceased, the

technically challenging nature of potential

new projects makes them considerably

more expensive to develop. The shift in the

reserves balance from ‘sanctioned’ barrels

towards the more expensive category of

‘probable’ and ‘possible’ developments,

makes this all the more worrying. Indeed,

if a capital development cut-off cost is

applied, then only around half of the 3.3

billion barrels of new field reserves would

secure investment sanction.

On a more positive note, the government

has taken several steps over the last twelve

months to help address the difficulties

faced in attracting investment. The

introduction of the new field allowance

in the 2009 Budget and its subsequent

extensions in the Pre Budget Report

and at the beginning of this year were

a welcome acknowledgement from the

government that a marginal reduction in

tax rate can create a win-win outcome,

driving up investment and production

and increasing overall tax returns to the

Exchequer, although the precise effect

2010 Oil & Gas UKAc�vity Survey

To read a copy of the report, log on to

theOil&GasUKwebsiteathttp://www.

oilandgasuk.co.uk/forecasts.cfm

of these measures will take time to work

through the system.

Securing all these investments, which is

so crucial to the UK’s security of energy

supply, will demand further action from

both industry and government. An

effective cost reduction programme is

required, embracing the lightening of the

burden of development and operating

costs, production taxes and UK and EU

regulatory compliance. Oil & Gas UK is keen

to continue its work with the government

to find the best path to maximise recovery

of the UK’s oil and gas reserves.

Page 10

Feature Article

Following four decades of finding and producing over 38 billion barrels of oil equivalent (boe), the UKCS is now characterised primarily as a mature oil and gas basin. Throughout this period, the UKCS supply chain has succeeded in overcoming a variety of challenges and has gained a reputation for technical, operational and commercial innovation in a harsh environment. Yet, producing the remaining oil and gas reserves from this mature basin will not be an easy task.

For example, the cost structures that evolved in support of finding and producing the UKCS’ major fields, such as Forties and Brent, will have to adapt to meet much

tighter project economics from smaller oil accumulations. The supply chain will have to compete globally to maintain and attract human and physical resources. Mature basins still require the innovation and application of new technology. Existing equipment, services, methods and support structures have to be reviewed. New sources of investment have to be found. Paradigms have to be challenged. While all this may sound daunting, we have a history of successfully overcoming such difficulties in a collaborative manner.

Those successes include such things as the development of standard contracts and the Industry Mutual Hold Harmless (IMHH) Deed which improves the tendering and contracting process and drives out cost. Oil & Gas UK has led the establishment of the Supply Chain Forum which in turn has delivered many separate projects and workflows, all of which focus on improving work methods. For example, the widely acclaimed Share Fair promotes the transfer of knowledge to help the supply chain plan and resource for upcoming activity.

Continuous improvement in all these initiatives is measured through the supply chain code of practice, a set of guidelines which aims to ensure an efficient supply chain by driving out waste and reducing cost.

Another important factor that has helped the development of our supply chain capability is the contribution that we make through the export of products and services globally. As we experience downturns in activity on the UKCS these exports help us maintain our resources and capability and we provide a valuable boost to the UK’s balance of trade and tax revenue. Experiences learned from other oil and gas areas can be considered for adoption on the UKCS.

We have a lot to be proud of what we have achieved on the UKCS and there are many other mature basins where I have worked such as India, Malaysia and Indonesia which we can continue to learn from and adapt their best practices to suit our own circumstances.

I firmly believe that the UK oil and gas supply chain is uniquely placed to overcome any future challenges. Most importantly we have a great prize to aim for, approximately

Overcomingchallenges-therightcoursefortheoilandgassupplychainbyBrianKinkead

supplychaindirector,Oil&GasUK

Brian Kinkead has recently beenappointed Oil & Gas UK’s supply chaindirector.InhisfirstarticleforWireline,heshareshisthoughtsonthestateoftheUKoilandgassupplychain,thechallengesitfacesnowandinthefutureandwhathisteamcandotosupportthisvitalsegmentoftheUKeconomy.

25bn boe of recoverable reserves. It was encouraging to see the results of the latest Oil & Gas UK Index, which show that in Q4 2009, business confidence appeared to be returning to the province. The overall industry index rose by six points to 56 in the final quarter of last year from 50 (out of 100) in the previous quarter. In fact, in the first three quarters we saw a clear gap in confidence levels between the exploration and production companies and the industry’s supply chain, with the supply chain index being 16 basis points lower than the exploration and production (E&P) index. In Q4, this gap has significantly narrowed to seven basis points difference. The increase in optimism within the entire upstream sector suggests that investment opportunities are being considered by E&P companies which is filtering through to increased activity and optimism within the supply chain. This improvement is welcome, however, we still have some way to go to rebuild business confidence to the levels of a few years ago.

Today, with the increase of membership across the supply chain and the inclusion of the Well Services Contractors Association (WSCA) within Oil & Gas UK, we are building a new and well resourced supply chain directorate that is the focal point for all matters related to the upstream oil and gas supply chain. It will play a leading and strategic role in delivering a sustainable and world class capability for the UKCS. My first aim is to make sure we maintain progress with all the great ongoing Oil & Gas UK initiatives and to not lose any of the learning and momentum that has been built up. I will use the next few months talking to members across the supply chain including operators, major contractors, SMEs, and those other associations and businesses that support our supply chain activities. It’s all about listening and asking the right questions to understand what the short and long term supply chain’s aims, needs and concerns are. The next phase will be to provide leadership and facilitate the development of joint strategies that help us resolve the above challenges that our mature basin poses.

Iwouldencourageourmemberstoget intouchsothatwecanlistentoanddiscussyourideas.

Email:bkinkead@oilandgasuk.co.uk

Wireline | issue 1� | Mar �010

Page 11

The recently announced 26th Licensing Round offers acreage across the UKCS, ranging from fallow and lapsed licences within the North Sea to frontier regions in deeper water north and west of Shetland and the Western Isles. The announcement was accompanied by a quote from Energy Minister Lord Hunt, re-stating the future potential of the UKCS:

“… The UK’s oil & gas industry … stillprovides three quarters of our energyneeds and some350,000 jobs. Estimatessuggestthattherearestillaround20billionbarrelsofoilequivalent,orpossiblymore,tobeproduced.”

A key to unlocking this potential is a co-ordinated and strategic approach to investment in research and new technology. The announcement of the 26th Round coincides well with industry-led initiatives through the National Subsea Research Institute (NSRI) to ensure the maximisation of production from existing reserves, and the realisation of ideas to transform future field developments with a strong focus on subsea production.

The long term research and development programme that will result from these initiatives will align well with the needs of operators on the UKCS to develop new and potential assets, in particular in frontier regions. The intention is to enable the use of novel techniques and technology to the best effect to allow production to be maximised from existing fields, whilst at the same time driving down excess costs. These same technologies are also intended to enable economically viable production from smaller, marginal or more isolated reservoirs across the UKCS, taking advantage

of new radical concepts for future field design to reduce both capital and operating expenditure to allow the “hard to get at” oil and gas reserves to be technically cheaper and easier to produce.

NSRI, together with its member companies comprising businesses across the supply chain, has been identifying the priority research needs of the subsea oil and gas sector for the near and long term. These are being moved forward through the development of long term research programmes in the following areas:

Smart control systems, intelligent condition monitoring, and a step change improvement in reliability through improvements in networking of subsea equipment, data communications and data transfer, and a fundamental improvement in management and use of data. This will enable development of a more robust system of prediction-based maintenance, and autonomous operation of more remote fields.Local generation of power for subsea equipment to reduce the need for long distance power cables, and to facilitate isolated developments with reduced infrastructure.Innovative materials selection to enable subsea equipment to be developed that is corrosion and degradation resistant, and that is cheaper, lighter and stronger, thereby simplifying installation especially in frontier blocks.Improvements to flow assurance modelling, especially placing emphasis on the modelling and handling of by-products including sand, wax and other solid components, corrosive gases and produced water in a subsea environment.

New frontier fields in more remote and hostile environments, deeper and further offshore, will also benefit from these research programmes that are intended

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to deliver step change improvements in reliability and drive down operating expenditure for existing fields, driven by the need to extend productive field life. This of course aligns well with the need to maintain UK domestic energy supplies and ultimately sustain jobs in what remains an important economic sector for the UK.

Much of the future development to result from the 26th Licensing Round will potentially be dominated by subsea facilities as the industry seeks to remove the need for surface-based facilities. It is pleasing that leading operators and service companies across the UK’s subsea oil and gas industry have recognised the need for a co-ordinated vision looking to the future of field development that should deliver fundamentally more reliable production that can also contribute to the life extension of the UKCS. These initiatives being developed with involvement across the supply chain for strategic investment in research, combined with a strategic government approach to incentivise continued investment of E&P activities, should enhance development of fields in the shallower waters of the North Sea more economically. At the same time, it can facilitate development of frontier fields further offshore in deeper water through new enabling technologies. In this way research can, in the long term, be shown to be contributing directly to the sustainability of the UKCS as well as the UK’s contribution to the global subsea oil and gas industry.

Investmentinresearchvitalforlong-termsuccessByMarkCritchley,businessmanager,NationalSubseaResearchInstitute

The National Subsea Research Institute isa joint, not-for-profit venture between theUK subsea industry and academia. It wasfoundedinDecember2008bySubseaUK,TheRobert Gordon University, the University ofAberdeen, theUniversityofNewcastleuponTyneandtheUniversityofDundee.Itsfundingof£600,000perannumfor3years supportsthe development of a co-ordinated researchstrategybasedonavisionofpartnershipandcollaboration to develop new technologies,techniques and knowledge to the long-termbenefitofthesubseaindustry.

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Whatever the outcome of this year’s general election, there is one thing for certain. Come summer, there will be a large number of new faces in Westminster. Many of the newly elected MPs, more likely than not, will only have a scant knowledge of the oil and gas industry, the challenges it must overcome to recover these valuable natural resources or the full significance of the sector’s contribution to the country’s prosperity.

In previous issues of Wireline, Oil & Gas UK’s chief executive Malcolm Webb has expressed his dismay at the general lack of awareness of our industry’s activities, fed by the all too widespread belief that the heady days of production in the North Sea are over and that oil and gas can, in any case, be relegated to the backrooms of energy policy in the low-carbon future.

Perhaps this is changing. The Chancellor, Alistair Darling, in a recent speech in Edinburgh, acknowledged how North Sea oil and gas had been a “huge asset for this country”, and would remain so “for some time”, adding that the UK economy has many strengths, whose advantages need to be exploited and its success stories

trumpeted across the world. Around the same time, he was quoted in the press as saying that the sector, along with financial services, will be important for economic recovery. After all, the industry is still likely to contribute £7 billion to the Treasury in the current tax year, despite commodity prices having slumped, and it could support hundreds of thousands of jobs across the UK for as long as Britain continues to make the most of its valuable oil and gas assets.

Recent visits to Aberdeen by shadow energy ministers have also helped to boost the industry’s profile. In our discussions with the opposition parties, it appears that they too recognise the importance of oil and gas in the UK’s future energy mix and we watch with a keen eye for energy policy documents to be published in the coming weeks.

StepsintherightdirectionThe new tax incentives Mr Darling announced in January to encourage the development of remote deep water gas fields West of Shetland, together with the measure introduced last December

to broaden the value allowance on other new field developments, signal the current government’s recognition that this important industry needs supportive policies to maximise the full economic benefit of its activities over time.

The Treasury’s recent announcements were steps in the right direction. But much more needs to be done to improve the UK industry’s global competitive position so that it can attract the substantial investment that will be required to explore for and develop the country’s estimated remaining 25 billion barrels of oil and gas and keep its successful supply chain anchored here.

With this investment, aided by clear sighted policies, the country could still win up to £1.5 trillion worth of oil and gas production, together with the associated benefits of highly skilled jobs, cutting edge technologies, sustained tax revenues and export earnings, as well as continued energy security.

Without the right measures, the UK’s offshore oil and gas industry risks accelerated decline and the supply chain

PromotingSuccess:takingthemessagetogovernment

byTrishaO’ReillycommunicationsdirectorOil&GasUK

Feature Article

Wireline | issue 1� | Mar �010

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will move overseas. Natural resources left in the ground do not create jobs, nor do they earn tax revenues. They mean greater dependency on imported oil and gas, weakening the UK’s balance of trade and its security of energy supply.

PolicyframeworkforfuturesuccessThese are important messages to take to the new body of legislators who will form the next government. That is why last month, Oil & Gas UK published a policy framework for the industry to help with our engagement with politicians and prospective parliamentary candidates in the run up to the general election, and beyond.

‘Promoting Success’ summarises the key areas which our members believe government needs to focus on to ensure the industry’s future success. While the industry has its own role to play in improving the UK province’s competitive advantage, the main purpose of the document is to set out the government policies, regulatory framework and other political measures which we believe will help to set a better course for sustaining both UK oil and gas production and the long-term economic health of the supply chain.

The policy framework has the following key elements:

Fit for purpose regulation which is well resourced, proportionate and working in unity within industry and across government departments towards the common, overarching goal of maximising recovery of the UK’s oil and gas reserves.

Afiscalregimetailoredtotheneedsof the UKCS’ advancing maturity which gives incentives for investment and sustains tax revenues for the country.

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Policiestosupportthegrowthofthesupply chain so that the sector can continue to capitalise on its reputation as a global centre for excellence for offshore engineering, technologies and operational expertise.

Safety where we call for the continuation of goal setting legislation, improved management of the HSE charging regime and consistent application of HSE guidance by offshore inspectors.

Skills where we ask for government help in meeting the industry’s needs for high quality employees by supporting secondary and tertiary education in science, technology, engineering and maths. The industry needs to continue to train and develop its workforce and will look to its own skills organisation, OPITO – the Oil & Gas Academy, to help deliver this objective.

Environmental policies which are proportionate to risk and provide demonstrable environmental benefit, without compromising the goal of maximising recovery of the UK’s oil and gas reserves.

Oil and gas will continue to be the world’s dominant source of primary energy for many decades to come. Here in the UK, even on achieving the government’s targets for primary energy supplied from renewable sources, we will still need to rely on oil and gas to provide 70 per cent of our primary energy in 2020.

The good news is that this country boasts a strong oil and gas industry which is not short of investment opportunities for further substantial indigenous hydrocarbon production, supported on its doorstep by a world class supply chain with increasing global reach.

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However, the future of this tremendous British asset cannot be taken for granted. The industry must compete globally for investment. Decisions are taken based not just on the geology of the basin but also on the business conditions. If these conditions are not right, then investment will go elsewhere. Dialogue between industry and government must continue and the correct measures taken to make the business environment for investors as attractive as possible.

‘Promoting Success’ will be used as a key element of that dialogue, helping to set the agenda for discussion in the next Parliament and prompt appropriate actions by our future law makers.

Foracopyof‘PromotingSuccess-apolicyframeworkfortheUK’sOffshoreOilandGasIndustry’,pleasecontactKerryFulcheronTel02078022432oremailkfulcher@oilandgasuk.co.uk.Alternativelyyoucandownloadacopyfromwww.oilandgasuk.co.uk/governmentrelations.cfm

Page � | Promoting Success

Promoting SuccessA policy framework for the UK’s Offshore Oil and Gas Industry

The UK’s Offshore Oil and Gas - an industry to be proud of

Britain’s offshore oil and gas industry is of strategic national importance, but today it is at a crossroads.

Its long-term health will require major investment and clear-sighted policies.

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Feature Article

Whatareyouhopingtoachievethroughyourlectureatthisyear’sSafetyAwards?

My main aim is to encourage the industry to maintain its focus on improving offshore safety. There is no doubt that over the last few years we have gone through some challenging times in many ways – structural changes among operators, some stark reminders of the importance of process safety and asset integrity, concerns about the extent of workforce engagement and HSE’s publication of its KP reports. But what I am sure we have today is a renewed commitment to focus on all aspects of offshore safety. What must be different this time is that we maintain the level of focus and commitment and not allow it to diminish as the short-term measures of performance improve.

Whatroledoyouthinkrecognitionandrewardplayintermsofworkingtowardsgoodsafetystandards?

I think they are very important to health and safety just as they are to any other aspect of business management and performance measurement. No one ever became inspired by focussing on failure. By recognising and celebrating successful achievements we can inspire and motivate others to follow good practice and learn from one another. We keep saying that health and safety has to be fully integrated into the culture to be effective. It is, therefore, essential that the culture includes recognition and reward for the positive contributions that achieve this.

Q What do you see as the most important area theindustry needs to work on this year to improvesafety?

I wouldn’t want to focus on any one thing as being more important than others. HSE has made our offshore priorities clear. We have told people in general terms what we think they need to focus on. But every installation and every company needs to look at their own role, and the processes they operate, and decide where their particular priorities lie. HSE’s Offshore Safety Division will be keen to see this being done when they visit installations. Of course, we want to see continued reduction in the number of hydrocarbon releases reported but, as everyone knows, there needs to be focus on underlying asset integrity issues to make that happen; not good luck.

My personal hope is that this year will see no tragic incidents in the offshore industry, whether that be at work or getting to work.

Doyou think that theHSEand the industry shouldworkmorecloselytogetherwhendevelopingsafetyinitiatives?

I think continued dialogue and understanding between HSE, industry and other groups that have a stake in the success of the sector is very important. However, let us not be under any illusions, the parts we play are different and always will be. To achieve our common goals, we can work together to help ensure that our strategies and our priorities are aligned but we must also perform our separate and distinct roles.

InherfirstinterviewwithWireline,JudithHackittCBE,chairoftheHealthandSafetyExecutive,callsonindustrytokeepitsfocusonoffshoresafety,increaseworkforceengagementandcreateanopenandrewardingsafetyculture.

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HowdoyouseetheroleofStepChangeinSafetyinthis?

To me, Step Change in Safety is the embodiment of industry showing leadership. When HSE published KP3, I expressed real concern that the industry was being too reactive and fixing problems after we pointed them out. Now I see industry setting the pace and leading for itself. However, Step Change has to be sustained rather than be a short-term “kick start” initiative. A critical factor for achieving this must be its involvement of all industry players, including trade unions.

Howdoyouthinktheworkforcecouldgetevenmoreengagedinoffshoresafety?

Let’s recognise first of all that in many places offshore workforce involvement is already good. Many people deserve credit for getting us to where we are today, including Oil & Gas UK for their considerable involvement in addressing the very difficult ‘Not Required Back’ issue. The type of leadership we want to encourage requires a culture where workers feel that they can legitimately express their concerns, and that their suggestions will be listened to, welcomed and acted upon. If they are to be truly involved in this way, managers at every level, without exceptions, have to demonstrate with their own actions a commitment to open, honest and continued dialogue.

What will be the key priorities in 2010 for theOffshoreDivisionoftheHSE?

OSD’s priorities will continue to be driven by the KP3 agenda. This will ensure that the industry maintains its impetus in improving the integrity of its assets. HSE will be supporting this drive with a new inspection initiative focused on the management of ageing installations and their life extension. This programme is likely to begin in May. As you would expect, work on workforce engagement and safety leadership will also feature strongly.

TheHealthandSafetyCommissionand theHealthand Safety Executive merged in April 2008. Whathavebeenthemainbenefitsfromthatchange?

Undoubtedly the most tangible benefit to come out of the merger has been the new ‘Strategy for Health and Safety in Great Britain in the 21st Century’. Not just because the strategy resets the direction for health and safety in all sectors,including offshore,but because:

of the way we developed it, with extensive and visible consultation with stakeholders by HSE’s Board;the strategy is all inclusive. It’s a strategy for everyone involved in the health and safety system, not just HSE, and we all have important roles to play which are recognised by us all;the level of energy I now see everyone putting into turning that strategy into real delivery, which really is fantastic; andwe have a strategy which unites us all around a common purpose; prevention of death, injury and ill health to all those at work and those affected by work activities.

What,ifany,healthandsafetylegislativechangesdoyouanticipatethatarelikelytoimpacttheoffshoreoilandgasindustry?

We already have a good regulatory framework within which to operate current facilities. The future does hold some interesting challenges though, not only in continuing to operate facilities which are already beyond their expected lifespan, but also in meeting the challenges posed by the new offshore processes. These bring their own risks to be managed. For example, major investment in offshore wind generation and carbon capture and storage are important parts of the UK’s energy strategy for the future. We need to consider the new risks involved and ensure that we address them in a timely and appropriate manner. We want to enable enterprise and innovation to continue in all sectors of the economy, but to do so with the risks well managed and well regulated.

TheUKOil&Gas IndustrySafetyAwardstakeplaceon21AprilattheMercureArdoeHouseHotel,Aberdeen.Withover90nominations,thelunch event will provide the perfect platformto rewardoutstanding safety achievements infrontof400industrypeers.

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21April:TheUKOilandGasIndustrySafetyAwards2010Mercure Ardoe House Hotel, South Deeside Road, Aberdeen, AB12 6YP

12.00pm – 3.00pm

26May:AberdeenBreakfastBriefingBeach Ballroom, Beach Promenade, Aberdeen, AB24 5NR

7.00am – 9.00am

16June:LondonBreakfastBriefingHerbert Smith, Exchange House, Primrose Street, London

8.00am – 10.00am

10June:SafetySeminarAberdeen Exhibition and Conference Centre, Aberdeen, AB23 8BL9.00am – 5.00pm

Othereventsandimportantdates:

17March:CompetenceandTraininginEmergencyResponseGuidelinesLaunchOPITO – The Oil & Gas Academy, Minerva House, Bruntland Road, Portlethen, Aberdeen, AB12 4QL9.00am – 12.30pm

28Apriland22June:SupplyChainWorkshopsOil & Gas UK, 3rd Floor, The Exchange 2, 62 Market Street, Aberdeen, AB11 5PJ9.00am – 2.00pm

3November:PILOTShareFair12Aberdeen Exhibition and Conference Centre, Aberdeen, AB23 8BL7.00am – 4.00pm

4November:Oil&GasUKAwards‘10Aberdeen Exhibition and Conference Centre, Aberdeen, AB23 8BL7.00pm - late

Contact Oil & Gas UK

Editor: Trisha O’Reilly, Oil & Gas UK Designed by: Fiona Bridgeman, Oil & Gas UKPrinted by: Compass Print on recyled paperCopyright © The United Kingdom Offshore Oil and Gas Industry Association Limited trading as Oil & Gas UK March 2010

Oil&GasUKAberdeen3rd FloorThe Exchange 262 Market StreetAberdeen AB11 5PJTel: +44 (0)1224 577250Fax: +44 (0)1224 577251

Oil&GasUKLondon2nd Floor 232-242 Vauxhall Bridge RoadLondon SW1V 1AUTel: +44 (0)20 7802 2400Fax: +44 (0)20 7802 2401

Email:info@oilandgasuk.co.ukWebsite: www.oilandgasuk.co.uk

Dates for your diary And finally...

NewOil&GasUKwebsitewww.oilandgasuk.co.uk

Oil & Gas UK’s new website has been launched providing a visually appealing, one-stop shop for journalists, politicians, their researchers and members of the general public wanting to find out about our industry and its operations. The site is more user-friendly with much improved navigation and search function and clearer links between issues and related news items, publications and events. Please use the feedback form on the website if you’d like to offer comments and suggestions for further improvement.

For further information on all the Oil & Gas UK events, sponsorship or speakeropportunitiespleasecontactLouiseWoodorStaceyHopkinTel:01224577250orvisitwww.oilandgasuk.co.uk/events

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