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news and informa�on from Oil & Gas UK issue 4 february 2008
in this issue Disposing of NORM scaleOil & Gas UK addresses the disposal of natually occuring radioac�ve material
W
Face to Face: Interview with the Energy MinisterMalcolm Wicks MP discusses the Energy Bill
Supply Chain Management ForumFull steam ahead for new Oil & Gas UK supply chain management forum
RIg RatesAGR discusses the implica�on of rising rig rates on UKCS ac�vity
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Wireline | issue 4 Feb �008
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News and Views
ContentsWelcomeAt the start of a new year, it always seems appropriate to look ahead and see what the future could have in store. So it is fitting that in this first issue of Wireline for 2008 we flag up two key events that will explore the future direction of the UK offshore oil and gas industry.
The end of February sees the publication of the latest Oil & Gas UK Activity Survey which maps the industry’s activity plans in 2008 and beyond while in April, we will be holding our first conference for young professionals in the industry.
The aim of the Oil & Gas UK Next Generation Conference is to encourage industry employees in the early stages of their careers to think innovatively about some of the issues that affect the UK continental shelf, explore how they can help shape the future direction of the industry - and to give them the opportunity to get their views heard by today’s captains of industry. We hope to gather some interesting ideas that will help us formulate future policy at the association.
I am also delighted that the Energy Minister Malcolm Wicks agreed to kick 2008 off with our first “Face to Face” interview of the year, given the current prominence of the Energy Bill, while the association’s recently appointed supply chain issues manager, Norman McLennan, outlines the work programme for our new supply chain management forum.
Spring is a time of growth and development and we are certainly seeing plenty of that at Oil & Gas UK, which I hope is reflected in this issue.
Have a good 2008!
Trisha O’ReillyCommunications Director
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. We would also welcome letters to the editor which we would aim to publish in future editions.
Contact: Alexa Chaffer, Oil & Gas UK communications directorate Email: [email protected] Tel: 020 7802 2412
Oil & Gas UK’s Activity Survey Report is published
News and Views
Oil & Gas UK Activity Survey Report
Oil & Gas UK launches the findings of its latest survey of
industry activity plans
The Next Generation Conference
Young professionals in the UKCS meet to help shape the
future of their industry
Suspended Wells
Energy Bill highlights government concerns over suspended
wells
The DEAL Management Website
A Secure future for DEAL
Codes of Practice
PILOT and industry work together to improve business on
the UKCS
Gas Prices
David Odling discusses the ups and ups of gas prices
New Step Change in Safety Sharing Website
Launch of safety sharing website kicks off industry-wide
asset integrity programme
Medical Guidelines
Oil & Gas UK launches updated medical guidelines
Step Change in Safety Annual Dinner
Step Change in Safety event underlines industry
commitment to safety
Parliamentary Update
Westminster, Holyrood and Brussels Updates
A round-up of the latest political developments, including
an update on the UK Energy Bill
Oil & Gas Industry All Party Parliamentary Group
Record attendance at this year’s reception at the House of
Commons
Feature Articles
Face to Face: Interview with the Energy Minister
Malcolm Wicks MP discusses the Energy Bill
Disposing of NORM Scale
Oil & Gas UK addresses the disposal of naturally occurring
radioactive material
Supply Chain Management Forum
Full steam ahead for new Oil & Gas UK supply chain
management forum
Rig Rates
AGR discusses the implication of rising rig rates on UKCS
activity
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Young UKCS professionals meet to shape future of their industry
Oil & Gas UK Dates for your Diary 15
Oil & Gas UK is organising an interactive conference on April 23 to encourage young professionals in the oil and gas industry to think innovatively about some of the issues that affect the UK continental shelf. What’s more, the Next Generation conference, which will be held at the Aberdeen Exhibition and Conference Centre, will give delegates the opportunity to get their views heard by today’s captains of industry. The event, sponsored by Maersk Oil, aims to encourage young professionals in the early years of their career to take a fresh look at the future direction of the UK oil and gas industry and the part they can play in it. Companies are being invited to send delegates from a broad range of disciplines, including those with engineering, legal, financial, environment,
health and safety and human resources backgrounds, so that as wide a perspective as possible can be gathered.
This is an event for young people, which is being run by the young people in our industry. The programme features four speakers who are relatively early on in their careers: Sam Howard, project manager at OPITO Oil & Gas Academy, who will challenge delegates on skills issues; Jessica Burton, an Oil & Gas UK business analyst, who will stimulate discussion on health and safety; Mike Mair, a project manager at PSN, who will explore the business and commercial drivers in a competitive UKCS; and Emily Ferguson, a geologist with Maersk Oil North Sea UK who will address environmental issues.
Delegates will be encouraged to debate the issues in facilitated break-out sessions
and feed back their recommendations on future policy to Oil & Gas UK board members, including the association’s new joint chairmen, who will also be taking part in the day. For more information on the conference or to book your place visit: http://www.oilandgasuk.co.uk/new/next_generation_conference.cfm
In addition to the principle sponsor, the Next Generation Conference is supported by AGR Petroleum Services and Technip UK Ltd.
Oil & Gas UK’s latest forecasts for exploration, development and production of oil and gas reserves in 2008 and beyond were published on February 25 in its annual Activity Report.
The report highlights the considerable potential in the UK continental shelf (UKCS), but recognises that the economics are getting tougher. Meanwhile the many companies supporting the UKCS continue to broaden their reach to service the global oil and gas sector.
While continued cost inflation, and its knock-on effect on the efficiency of capital (down 66% in the last five years), led
investment in new oil and gas projects to fall by £1 million in real terms to £4.9 billion in 2007, total development expenditure of £29 billion is planned over the next decade.
However, £17 billion of these investments are not yet approved, and will be reliant on project economics competing favourably with those in other basins around the world, so the Government and industry must work closely together to ensure the basin’s attractiveness.
Oil & Gas UK’s chief executive, Malcolm Webb, said: “The valuable experience gained over the years from the UK’s
maturing oil and gas basin ensures we now have access to a world-class supply chain and extensive infrastructure to bring oil and gas ashore. However, the basin’s maturity also makes it more sensitive to cost inflation which has been rampant of late and is clearly affecting its competitiveness. Now is the time for Government to work closely with the industry to ensure the UKCS can secure the investment needed to maximise the recovery of the UK’s oil and gas reserves.”
The Oil & Gas UK 2007 Activity Survey Report is available on Oil & Gas UK’s website at http://www.oilandgasuk.co.uk/issues/economic/index.cfm
Oil & Gas UK’s Malcolm Webb “hands the baton” to Sam Howard of OPITO, one of the conference speakers
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Wireline | issue 4 Feb �008
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Energy Bill highlights government concerns about suspended wells
News and Views News and Views
A secure future for DEAL
The recently published Energy Bill highlights government concerns about suspended wells within the oil and gas sector. It announces plans to give the Department of Business, Enterprise and Regulatory Reform (BERR) the ability to order a company to plug and abandon a suspended well at the licensee’s expense. In particular, the changes will allow BERR to address the problem of wells that have been suspended by a company for a considerable period of time.
Suspended wells pose a significant threat to the safety of fishermen working on the UK continental shelf (UKCS). The tragic ‘Westhaven’ accident in 1997, when four crewmen of the Arbroath fishing boat drowned after their boat became snagged on a pipeline and sank, highlighted the importance of communication between the oil and gas and fishing industries. While this particular incident did not involve a suspended wellhead, it emphasised the potentially serious consequences if the locations of such hazards are not effectively communicated to the fishermen and the possible risks minimised.
The oil and gas industry, through Oil & Gas UK, is supporting various information systems to ensure that mariners are kept up-to-date with the positions and status of oil and gas related infrastructure in the UKCS, including the onboard electronic alert system FishSafe. In addition, the industry has set itself tough targets to reduce the number of open-water suspended wells (i.e. those outside safety zones) which have resulted in a considerable reduction in the number of snagging hazards to mariners.
Both fishing federations and other related stakeholders have been pleased with the progress to date on the information provided and the falling number of open-water suspended wells. However, there is concern that the rate of this decline has slowed over the past twelve months. Oil & Gas UK is actively working with operators and contractors to encourage collaboration on finding new ways to continue well abandonment projects at the lowest financial and resource cost.
Oil & Gas UK will update and publish new Suspension and Abandonment of Wells Guidelines detailing BERR’s new powers during 2008.
Further information on the Energy Bill can be found on page 7. For more information on suspended wells, contact Euan Meldrum on Tel: 01224 577261 or email: [email protected]
An overhaul of the funding arrangement for the DEAL website will ensure that those who benefit from the provision of information are paying subscribers and that the funding of the website is shared more equitably across the industry.
Companies operating on the UK continental shelf (UKCS) have come to rely on DEAL as their ‘one-stop shop’ for current, quality-controlled information on licences, wells, seismic surveys and infrastructure. The DEAL website is managed by Oil & Gas UK subsidiary, CDA Ltd. Since its launch in 2000, the website has been funded primarily by UKCS operators. However,
services are provided free-of-charge to a wider network of organisations, including service companies, financial institutions and academia based in the UK and abroad.
Recently Oil & Gas UK decided to make this situation fairer by asking each user that downloads data from DEAL to take out an annual subscription. Users have until March 17 to subscribe, after which date only registered users who are recognised as subscribers at the point of log-in will be able to download data from DEAL. The change only applies to downloads – all other DEAL functions will continue to be freely available, as before.
Annual subscription rates are £250 (plus VAT) for individual users and £2,500 (plus VAT) for companies. Users employed by Oil & Gas UK members who already fund DEAL directly are exempt from the charge, as are users working within certain UK government departments.
The subscription costs have been kept low and the new funding structure will help safeguard the continued availability of DEAL data for the benefit of industry in the long term.
For more information visit the DEAL website: www.ukdeal.co.uk or email: [email protected]
Industry and government are working together to improve engagement and compliance with the various codes of practice (CoP) that have been set up within the sector. The codes address three critical areas: to ensure an efficient supply chain, create positive commercial behaviour and to improve third party access to offshore infrastructure. Each code is a set of best practice guidelines which have been developed through joint effort by industry and government to standardise and simplify commercial arrangements between companies.
Following the PILOT meeting in November last year, a work group was created to
PILOT and industry work together to improve UKCS business strengthen company commitment to the codes and address specific areas of concern. In particular the group is focusing on:
The Supply Chain CoP and the use of FPAL in prequalification;The Commercial CoP and the use of Standard Agreements;The Infrastructure CoP and the deal making and close-out (ARN) process.
The group, which works under the management of co-chairs John Gallagher from Shell and Simon Toole from BERR, aims to push forward issues such as increasing enforcement of the codes and speeding up the completion of deals. The
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co-chairs will report on the progress made at the next PILOT meeting in June.
It is in the oil and gas industry’s interest to streamline their processes by using the codes and focussing effort on value creation. Current investment in the UK continental shelf (UKCS) and its associated activity is stretching the available resources and this strain is set to increase as the UK province matures and an increasing number of smaller fields are developed to sustain production. Making deals efficient now and into the future will ultimately help to ensure a more successful and competitive UKCS that will benefit everyone.
The ups and ups of gas pricesThe fluctuating and generally higher UK wholesale gas prices witnessed this winter were unexpected and given the impact further down the chain on retail prices, attracted much media attention. David Odling, Oil & Gas UK’s gas and commercial issues manager, gives Wireline readers some thoughts on why gas prices have behaved the way they have and explains the signs that show oil indexation has had significant part to play.
The first factor to note at play is the interaction of lower than expected gas supply and higher demand. Supplies of gas to the UK have been lower than expected for several reasons:
The Isle of Grain terminal in Kent has received less liquefied natural gas (LNG) recently than a year ago; LNG is in short supply worldwide owing to the late completion of several LNG projects, increased demand for LNG in Japan and South Korea and more locally, to an increase in Spanish imports of LNG;In contrast to winter 2006/7 when gas supplies through the Langeled pipeline unexpectedly flooded the UK market and gas prices crashed, less gas has arrived through this source in winter 2007/8 than was expected.
Demand for gas in the UK has been boosted by outages at nuclear power stations, with the shortfall being made up by gas fired power stations. The weather has also been colder this winter than last, so demand for gas has been higher than a year ago.
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Secondly, the increasing global oil price pulls UK gas prices upwards in two ways:
Gas prices on continental Europe are indexed to the price of oil. As the import of gas into the UK increases, which it does in times of higher demand, the extent to which the UK price is dragged closer to the world oil price also increases. The susceptibility of UK gas prices to this effect is in evidence. In November and December 2007, there were minimal flows in either direction through the Interconnector between Bacton in East Anglia and Zeebrugge in Belgium, indicating hardly any price differential between the UK and continental European markets;In addition, the UK has a traded gas market which is sensitive to perceptions of future supply. With a perception of slightly tight gas supply, oil is setting a floor for gas prices.
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Wireline | issue 4 Feb �008
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News and Views Parliamentary Update
Oil & Gas UK launches updated medical guidelines
Fully revised and updated medical guidelines, which set out good practice for assessing the health of those working or intending to work offshore in the UK, will be published by Oil & Gas UK in April. The guidelines have been completely re-written to reflect the new approach which assesses the risk a candidate with an underlying medical condition may pose either to themselves or to others.
The updated document will feature two new sections dealing with organ transplants and allergies and anaphylaxis,
as well as substantially revised chapters on psychiatric disorders, endocrine disorders, obesity, alcohol dependence and drug abuse, and medications. Oil & Gas UK members will be able to download the new medical guidelines free of charge from the association’s members-only extranet (via http://www.oilandgas.org.uk). Copies will also be available in print and CD ROM formats from the Oil & Gas UK website, priced £34 (plus VAT) for members and £68 (plus VAT) for non-members.
More than seventy oil and gas company managing directors and senior leaders gathered at the annual Step Change in Safety dinner on February 5. The event underlined the guests’ personal commitment to improving safety offshore and reconfirmed their engagement with the Step Change in Safety initiative.
All attendees signed the Step Change in Safety charter, making a pledge to take action in a number of key safety areas: to work towards consistency and continuous improvement in industry standards by demonstrating visible safety leadership; engaging effectively with their site managers, safety representatives and workforce; and promoting effective collaboration through the sharing of best practice.
Ian Aitchison, Step Change in Safety support team leader, said: “This new charter rewrites the original 1997 pan-industry commitment. After ten years, it is time for Step Change in Safety members to demonstrate their determination to make a difference in achieving improvements in safety performance and to restate their commitment to this unique initiative.”
Left to right: Chris Ness of Transocean Inc, Steve Rae of Noble Drilling, Roger Hodgson of KCA Deutag sign the charter
Step Change in Safety event underlines industry commitment to safety
Step Change in Safety has kicked off its programme to improve asset integrity on offshore installations with the launch of a new sharing website. The website went online at the beginning of January and is the first of its kind. It aims to increase the sharing of good practice, improve companies’ internal learning processes and enhance communication within companies and across industry on the key issues surrounding process safety and asset integrity. The website is the first of a number of initiatives planned for 2008 which step up industry-wide efforts to enhance asset integrity on offshore installations. Complementing the significant investment being made by individual companies in their own asset maintenance programmes, the role of Step Change is to ensure that lessons learnt and good practices developed are widely shared so that the overall industry effort is as effective as it possibly can be.
A big attraction of the new website is the immediate and detailed access it gives to examples of best practice or lessons learned as they arise in industry. This means that new ideas can be translated very quickly into an improved work practice across companies.
In addition to the new sharing website, the asset integrity work group is in the latter stages of developing a one-day interactive workshop on asset integrity management. The workshop is scheduled for early spring and is intended to help senior managers ask the right questions about asset integrity and ensure they are sufficiently well informed when setting priorities and making decisions. For more information please visit the Step Change in Safety website: http://stepchangeinsafety.net/stepchange/resources_asset.aspx
New sharing website kicks off industry-wide integrity programme
The Energy Bill was published on January 10. In addition to opening the door for new nuclear power development, the Bill seeks to tidy up several small pieces of legislation relating to the upstream oil and gas industry, including the decommissioning of wells, third party access to infrastructure and the transfer of licences.
During the second reading debate on January 22, wide ranging discussions covered carbon capture and storage, nuclear waste, the Severn Barrage,
planning, wind farms, fuel poverty, social tariffs and energy efficiency.
The Energy Bill Committee heard its first oral evidence on February 5, with Mike Tholen of Oil & Gas UK due to give evidence on February 19. The Oil & Gas UK working group has been set up specifically to look at the details of the Bill.It has identified several issues it would like to see amended or clarified and a short memorandum has been submitted to the Committee. It is expected that the Committee stage of the Bill will be completed in the Commons by March 11.
WestminsterAs well as the Energy Bill, politicians at Westminster have been debating energy prices both in the chamber and through the BERR Committee. The Energy Minister, Malcolm Wicks MP, gave evidence to the Committee on January 31 and the Chairman, Peter Luff MP, then announced a full investigation of possible anti-competitive behaviour in the UK’s energy market.
HolyroodAt Holyrood, MSPs debated the UK’s Energy Bill on January 17. Opening the debate, the Energy Minister, Jim Mather MSP, stated that the Scottish government was not in favour of the building of new nuclear power stations. He indicated that Scotland’s energy needs could not be met by renewables alone and emphasised the importance of carbon capture and storage to allow Scotland to generate environmentally friendly energy from burning fossil fuels.
Labour’s Shadow Minister for Energy, Lewis Macdonald MSP, argued that the Scottish government should work with the UK government to implement in Scotland the same provisions for carbon capture and storage that would be implemented elsewhere in the UK. He proposed an amendment calling for the Scottish government to develop an energy strategy alongside the UK government.
The Cabinet Secretary for Environment, Richard Lochhead MSP, has announced a consultation on the Scottish Climate Change Bill. Details of the consultation can be found at http://www.scotland.gov.uk/Publications/2008/01/28100005/0 and the deadline for written submissions is May 2.
Energy Bill published
A number of policy proposals are going through the European Union (EU) that are of interest to the oil and gas industry. The headlines are about EU climate change policies. However, the European oil and gas industry is currently preoccupied with the EU’s 3rd energy markets package.
The 3rd EU energy markets package
Published last September, this package of five proposals for EU laws is designed to open up the European energy market. The UK offshore industry supports a genuinely open gas market across Europe and is engaging with EU policy-makers to try and ensure that this aim is achieved. Of the five draft law proposals, the industry’s main interest is in the two focused on the gas market: a draft Gas Regulation and a draft 3rd Gas Markets Directive. It is worth remembering that two previous EU Gas Market Directives, passed into law in 1998 and 2003 respectively, have not yet opened up the EU market as intended.
Climate change proposals
On January 23, the EU launched a number of climate change proposals. Each focused on different policy aspects of greenhouse gas abatement. Again there are five EU law proposals and again the offshore sector is particularly interested in two of them: the EU Emissions Trading proposal for phase III and an EU-wide law governing carbon capture and storage projects.
Both the 3rd energy markets package and the climate change proposals are expected to become law within a couple of years. The industry is now working with the EU policy makers with regard to both sets of proposals.
Energy issues high on political agendas
European Union Update
Westminster, Holyrood and Brussels Updates
DIARY DATE The Budget will take place at 12.30 on March 12 2008
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Wireline | issue 4 Feb �008
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Parliamentary Update
The Oil & Gas All Party Parliamentary Group’s annual reception, held at the House of Commons on January 15, was a great success with strong attendance from both politicians and industry representatives. Chairman Anne Begg MP paid tribute to the previous chairman Bob Blizzard MP and the contribution he had made to the group over many years. She also spoke positively about the future of the UK continental shelf (UKCS) and its importance for the UK’s economy.
The Competitiveness Minister Stephen Timms MP (an ex Energy Minister) was warmly welcomed by Malcolm Webb of Oil & Gas UK. The Minister outlined the key provisions in the newly published Energy Bill, the challenges in developing West of Shetland and how the industry has a great track record of overcoming hurdles. He also announced that the results of the 25th Licensing Round would be released in the next few weeks.
The star of the show was Marathon Oil’s Darren Wilson, last November’s winner of the Oil & Gas UK’s technician of the year award, sponsored by OPITO (overall sponsors were Maersk Oil). Darren gave his perspective of working offshore, the importance of training new people to enter the industry and the need to develop a strong knowledge of health and safety issues from day one. He also described all the support and advice he got from his older, more experienced work colleagues on the Brae field and likened it to having “50 dads”.
Record attendance at this year’s All Party Parliamentary Group receptionPictured left to right
1. Stephen Timms MP, Darren Wilson, Marathon Oil UK, Anne Begg MP and Malcolm Webb, Oil & Gas UK
2. Mike Horgan, Marathon Oil UK, Trisha O’Reilly, Oil & Gas UK, Lord Wakeham
3. Nigel Griffiths MP, Gavin Strang MP
4. Ian Cawsey MP, Rona Macdonald, Oil & Gas UK, Elliot Morley MP, Lord Bradley, Eric Martlew MP
5. Stephen Timms MP
6. Fiona Bayne, Shell UK Limited, Sir Robert Smith MP, David Odling, Oil & Gas UK
7. Robert Spink MP, Lord Fraser, Chris Allen, Oil & Gas UK
8. Malcolm Webb, Oil & Gas UK, Bob Blizzard MP
9. Malcolm Webb, Oil & Gas UK
10. Alan Meale MP, Anne McIntosh MP
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Wireline | issue 4 Feb �008
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Feature Article
Face to Face: an interview with Malcolm Wicks MPAlexa Chaffer interviews Malcolm Wicks MP and questions him on his role as Energy Minister and the Energy Bill.
Tell us a bit about your current role as Energy Minister? This is a job which I relish, primarily because of the challenges involved - balancing the country’s long term energy needs against the need to act effectively to combat climate change couldn’t be more vital at this time. Over recent years, energy issues have moved right up to the top of the political agenda for every nation around the world. Being at the heart of this, and engaging with the energy industry and other stakeholders to find sustainable solutions, is important and fascinating work.
How important is the role of oil and gas to the UK government? Maximising the value of our indigenous oil and gas resources remains a vital element of our overall energy strategy. Oil and gas production not only plays a key role in contributing to the nation’s energy needs, but is also a significant contributor to UK economy, with the sector supporting almost half a million jobs. Substantial reserves, between 16 and 25 billion barrels of oil equivalent, remain and the UKCS is still providing two-thirds of all UK energy needs. Government is working closely with industry so we have the best licensing, environmental, and business frameworks to attract the investment and activity needed to deliver this potential.
What is the most common question you get asked as Energy Minister? At present two areas come up a lot: nuclear and climate change. With nuclear, most people now seem to accept the case for allowing companies to propose new power stations as the existing ones near the end of their lives, but they often have specific concerns, for example about how waste will be dealt with. I’m very keen that
as things progress we take those concerns on board and provide really concrete reassurance to people.
On climate change, the question tends to be whether we can really tackle it while still using fossil fuels such as coal, oil, and gas. I don’t think we have a choice. We must tackle climate change, which is why we’re expanding offshore wind generation so quickly, and why we continue to need other low-carbon sources including nuclear. Of course we still need fossil fuels in the mix, and they have advantages in flexibility, reliability, and cost, but we have to use them far more cleanly than in the past, which is why we are taking the role of carbon capture and sequestration so seriously and funding a demonstration project here in the UK.
The Energy Bill was published at the beginning of January. What have your past few weeks involved since its publication? The Bill cleared second reading, which is the initial debate in the Commons, and is now in committee stage, which is where it will be scrutinised in more detail. This has of course meant that I’ve spent a lot of time debating and discussing measures in the Bill with my Parliamentary colleagues. I should say that I’m also following very closely the progress of the Climate Change Bill, which is very important to energy policy in the future, and the Planning Bill, which is vital if we are to meet our energy security and climate change goals without unnecessary delay.
Do you expect the 25th licensing round to encourage more entrants into the UKCS? My Department has a key role in generating new activity via offshore licensing rounds and our recent innovations, including the introduction of reduced cost “promote” licences and West of Shetland “frontier” licences, are particularly important - providing opportunities for a wider range of companies to invest here. We have attracted record numbers of new entrants
in recent Offshore Rounds, and are hoping for a high level of interest yet again.
Do you believe the industry is on track to meet the PILOT vision by 2010 and, if not, what needs to be done? It now seems certain that oil and gas production in 2010 will fall short of the challenging “vision” target established in 1999. That reinforces the need to continue with reforms such as the enhancements to the licensing regime to encourage new entrants into the basin, reinforcement of the industry Codes of Practice to improve relationships and speed up transactions, and pursuit of the “Stewardship” process. However, I think it was always clear that it was going to be a tough target to meet and we are in much better shape now than we would have been if no such target had been set.
What have your experiences of being offshore been like? I have been offshore now on a number of occasions, for example visiting Elgin/Franklin, and the LOGGS facilities and Rough storage facilities. I have also visited fabrication yards, and had regular contact with the industry on a number of fronts. Without fail, I continue to be impressed by the sheer scale and breadth of operations being carried out, the innovative thinking and world leading, cutting edge, technology being deployed. This is an amazing industry, with amazing people which continue to overcome significant hurdles and set standards for the rest of the world to follow.
In the EU, how confident are you of real progress happening with the 3rd Markets Package and what is the UK doing to ensure a truly open European gas market? The UK’s experience shows that competition benefits consumers and the economy. By giving clear investment signals to market players, competitive energy markets are the best way of maintaining
secure and sustainable energy supplies, increasing efficiency, and improving services for customers. We therefore welcome the proposals made by the Commission for the further development of the internal energy market. However, there are still big challenges ahead in this drive for liberalisation.
The Commission has identified a number of obstacles to the development of competition in some Member States. Chief
among these were a lack of unbundling of some vertically integrated companies, a lack of transparency and ineffective regulation.
The Commission has recently proposed legislation to tackle these problems which are being currently considered by the Council and European Parliament. The UK will continue to push hard on a number of fronts to ensure that there is true momentum in this process.
Anything else you would like to add?The global upturn in activity has fuelled sharp rises in costs and this has indeed created challenges. So we need to continue to work closely together to reach solutions to these obstacles and unlock the full potential of the basin. The industry has an excellent track record when it comes to overcoming hurdles, and I am confident that it will continue to apply innovative approaches. Government will do all it can to make sure that industry succeeds.
Malcolm Wicks MP and Bob Blizzard MP visit an offshore platform with ConocoPhillips managing director Archie Kennedy and SLP Engineering chief executive Dave Edwards
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Wireline | issue 4 Feb �008
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Disposing of NORM scale
Stuart KirkEnvironmental Business AnalystOil & Gas UK
Feature Article
Full steam ahead for new supply chain management forum
The issue of naturally occurring radioactive material (NORM) in oil production has risen up the agenda and become a priority for the UK oil and gas industry over the past few years. NORM scale clogs pipework and equipment on offshore installations and needs to be periodically removed from equipment as it can significantly slow down production. There are limited options for its removal and disposal. Current practice sees contaminated equipment sent to Scotoil, an Aberdeen based contractor, where the scale is removed using high pressure water jets, ground up and discharged via pipeline to the sea.
Disposal Route
This route is now under threat following the discovery of a radioactive ‘hotspot’ on Aberdeen Beach in 2005. An investigation was launched by the Scottish Environmental Protection Agency (SEPA) which aimed to find out where this ‘hotspot’ had originated and if the disposal of NORM had been a contributing factor. Although the findings suggested that Scotoil was not responsible and that the discharge method was not a threat to public health, SEPA ruled that the route could no longer be used after December 2008. The decision effectively removes the sector’s only means of disposing of NORM scale onshore from December 2008 and raises significant concern for the industry.
Oil & Gas UK has since been working with its members on a NORM scale waste management plan to develop alternative ways for its disposal. The intention is to find sustainable solutions which have minimal risk to the environment, company reputation and long term liability. They need also to be consistent with government policy. In the short term, this could entail locating interim storage facilities and landfill options, with a longer term strategic goal of securing OSPAR and government approval for reinjection or the creation of a dedicated repository for all low-level radioactive waste.
Reports
Last year saw significant progress with Oil & Gas UK publishing two reports on the subject. The first investigated the technical and regulatory constraints surrounding the temporary storage of NORM scale waste and the second provided a comprehensive overview of companies that could potentially provide disposal routes or a decontamination service. The challenge now lies in how these two sections of the market can be linked together.
Decommissioning
The issue is of greatest concern for installations currently approaching decommissioning. Though market appetite for providing disposal routes is relatively high, it is difficult to provide interested parties with business certainty since there are no reliable estimates of the quantities of NORM scale that would be generated from decommissioning. The potential NORM disposal market will therefore remain relatively unstable until further business security can be provided by the oil and gas industry or potential disposal route providers take the necessary business risk.
Planning permission has recently been granted for a landfill site in Aberdeenshire to accept NORM scale waste. This may provide the industry with a disposal route and open the door for other similar facilities. Oil & Gas UK will continue to monitor this development whilst progressing with the other elements of the NORM scale waste management plan.
The NORM Scale Reports mentioned in this article can be viewed at http://www.oilandgasuk.co.uk/issues/environment/reports.cfm
For further information, please contact Stuart Kirk on Tel: 01224 577265 or email: [email protected]
Last year not only saw the birth of Oil & Gas UK, but also the formation of a new Oil & Gas UK forum - the Supply Chain Management Forum. This new forum provides an active body through which representatives from the UK upstream offshore oil and gas sector’s operators, suppliers and contractors can have constructive and meaningful dialogue on issues such as supply chain development and its strategic role in continual business improvement. This includes the development and publication of best practices and discussions on how to minimise cost and waste in the total supply chain whilst ensuring business continuity for contractors/suppliers.
In 2008, Oil & Gas UK and project teams from within the forum will tackle the following areas.
Supply chain research
The aim of the research is to evaluate the economic footprint of the oil and gas supply chain within the UK economy, defining the breadth of the supply chain, its high value added contribution and future growth potential with the overall aim of producing a “compelling story” about the supply chain in the sector.
The changing gear initiative
This new initiative aims to encourage more compelling application of the Industry Supply Chain Code of Practice (SCCoP). Areas of key focus will be:
Increasing company sign-up to the SCCoP - embracing the new players in the sector;Timeliness: how can we ensure that parties share expectations, respond and progress matters on an acceptable timeframe? Enforcement: what is the best way to ensure compliance with the Code? How to ensure greater use of standard terms and conditions of contract, Model ITT’s and FPAL, drawing from information obtained from the Code of Practice Champions Network?
The development of an education pathway for supply chain practitioners in the industry
Oil & Gas UK in conjunction with OPITO the Oil & Gas Academy and CIPS (Chartered Institute for Purchasing & Supply) will develop and roll out a new, structured education pathway for supply chain practitioners with multiple entry points from school leaver/foundation level all the way through to executive diploma.
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Value contracting / cost base alignment project
A forum project team will look at developing novel contracting models for use across the supply chain under specific circumstances. This work front is necessary to craft possible solutions to the tension between projects being deferred due to high contractor costs and the contractors’ needs for business continuity.
The Forum’s many energetic member company representatives make a substantial contribution and play a crucial role in tackling the aforementioned challenges. ’Supply Chain’ will certainly be a strong theme throughout Oil & Gas UK activities in 2008 with a number of seminar awareness events already in the pipeline for mid year, culminating in a major supply chain conference, awards dinner and of course Share Fair 10 in November 2008. All in all we are expecting a hugely exciting and busy year ahead.
For further information, please contact Norman McLennan on Tel: 01224 577330 or email: [email protected]
Feature Article
Norman McLennanSupply Chain & CommercialIssues ManagerOil & Gas UK
Photograph courtesy of the Scotoil Group
Page 14
Wireline | issue 4 Feb �008
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23 April: Oil & Gas UK Next Generation Conference ‘08Aberdeen Exhibition & Conference Centre, Aberdeen, AB23 8BL9.00am – 5.00pm (followed by networking reception)
13 May: Aberdeen Spring BreakfastBeach Ballroom, Beach Promenade, Aberdeen, AB24 5NR7.00am – 9.00am
21 May: London Spring BreakfastPark Plaza Riverbank, 18 Albert Embankment, London, SE1 7TJ7.30am – 9.30am
5 June: Offshore Emergency Response SeminarAberdeen Exhibition & Conference Centre, Aberdeen, AB23 8BL9.00am – 5.00pm
12 June: Decommissioning Seminar – Engaging the Supply ChainAberdeen Exhibition & Conference Centre, Aberdeen, AB23 8BL9.00am – 5.00pm
Other events
6 July: Memorial Service - 20th Anniversary of Piper Alpha Tragedy2pmThe Reverend Andrew Jolly, Chaplain to the U.K. Oil and Gas Industry, will lead a memorial service at Kirk of St. Nicholas Uniting, Union Street, Aberdeen. This will be followed at 4 pm by an Act of Remembrance at the Piper Alpha Memorial in Hazlehead Park, Aberdeen. 11 November: PILOT Share Fair 10Aberdeen Exhibition & Conference Centre, Aberdeen, AB23 8BL7.00am – 4.00pm
12 November: Oil & Gas UK Supply Chain Conference ‘08Aberdeen Exhibition & Conference Centre, Aberdeen, AB23 8BL9.00am – 5.00pm
12 November: Oil & Gas UK Awards ‘08Aberdeen Exhibition & Conference Centre, Aberdeen, AB23 8BL7.00pm – midnight
After breaking the $100 psychological barrier, oil has been averaging $90 per barrel over the last few weeks. Only in 2006, the average oil price was $66 per barrel, and in 2007 it was $72. Regardless of the reasons for higher prices (world demand outgrowing supply, price speculators, and geopolitical tensions), the result remains the same: operators are working harder than ever to bring production online.
Current activity
According to Oil & Gas UK’s latest activity survey, the continued enthusiasm for drilling activity in 2007 was dominated by a significant switch to appraisal drilling which increased by 60%. Exploration success was quite limited, with around 13 commercial discoveries and total volumes discovered expected to be around 300-400 million barrels of oil and gas equivalent (half of what was discovered in 2006).
With oil and gas activity buoyant around the world, pressure on resources means cost inflation remains a major threat to the competitive position of the UKCS, with the cost of developing a new barrel of oil or gas having increased 15% and total operating costs having risen by £700 billion since 2006.
Drilling costs
Within that context, the costs for drilling in the UKCS have increased dramatically. With all rig capacity fully utilised, site survey vessels fully booked and long lead items taking longer to deliver, times are frustrating for exploration and production companies. Drilling rig day rates have almost doubled in the last 18 months: Jack-up rigs (15 working in the UKCS in 2007) can command from $195-$275,000 per day, while semi submersibles (22 in the UKCS) regularly approach or exceed $400,000 per day.
Larger operators have put together two or three year programmes and have secured long term rig contracts until 2010 or beyond. Unfortunately, this has hampered the ability of smaller independent operators, who are so vital to UK activity, to secure a rig at a competitive rate for their more intermittent drilling programmes. So, in the face of all this, how can we sustain the level of drilling activity that is needed to ensure that we maximise the full potential of the UKCS?
Providing solutions
Cost inflation is a global phenomenon resulting from buoyant activity around the world, over which the UK oil and gas industry has little influence – except to offset its effect by promoting more efficient working practices at home. Standard agreements for business use, efforts to increase compliance with the industry’s codes of practice, and promoting value contracting are just three areas actively being pursued by the industry.
One programme specifically designed to improve efficiencies in drilling activity is AGR’s Rig Campaign model, which was introduced to the UKCS in 2001. Under this concept, AGR Petroleum Services secures a drilling rig on a long term contract (usually 12-18 months), attracting a lower day rate than a short term contract would, and puts a multi-well multi-operator campaign together. Clients benefit from AGR’s engineering expertise, and also make considerable cost savings (from the aggregated buying power created by the programme and the efficiencies delivered through a continuous programme). The vast majority also see advantages in outsourcing their Well Project Management to AGR from planning through to completion.
Aside from securing lower day rates, AGR also ensures that rigs are used in the most efficient way by designing the rig programmes with the different well locations in mind, so that the shortest mobilisation times possible are offered. The same dedicated well team is retained for entire rig programmes, so the client benefits from lessons learned. AGR also holds contracts with the major third party service providers at term rates and can manage and administer these contracts on behalf of its clients.
In the UKCS alone, AGR Petroleum Services drilled 13 wells in 2005 with three different drilling units, 10 wells with three different drilling units in 2006, 14 wells with seven different rigs in 2007, and we have another 23 firm wells in the pipeline for 2008. We are now engaged in exploration, appraisal and sub-sea development activities providing all engineering, procurement, HSEQ and operational aspects of these programmes. Worldwide, AGR Petroleum Services has so far drilled 266 wells of all types for 82 clients in 22 countries.
Oil & Gas UK would be pleased to consider submissions from member companies. Please contact Alexa Chaffer for more information on Tel: 020 7802 2412 or email: [email protected]
Feature Article
Contact Oil & Gas UK
Editor: Trisha O’Reilly, Oil & Gas UK Assistant Editor: Alexa Chaffer, Oil & Gas UKDesigned and produced by Fiona Bridgeman, Oil & Gas UKPrinted by Chiltern Printers (Slough) Limited on recyled paperCopyright © The United Kingdom Offshore Oil and Gas Industry Association Limited trading as Oil & Gas UK December 2007
Oil & Gas UK Aberdeen3rd FloorThe Exchange 262 Market StreetAberdeen AB11 5PJTel: +44 (0)1224 577250Fax: +44 (0)1224 577251
Oil & Gas UK Brussels6th Floor Rue Wiertz 50B-1050BrusselsTel: +32 (0)2 286 1137Fax: +32 (0)2 230 9832
Oil & Gas UK London2nd Floor 232-242 Vauxhall Bridge RoadLondon SW1V 1AUTel: +44 (0)20 7802 2400Fax: +44 (0)20 7802 2401
Email: [email protected]: www.oilandgasuk.co.uk
Dates for your diary
‘08Breakfast Season
‘08Seminar Series
And finally...AGR addresses the rig resource challenge
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For further events information on events or for sponsorship opportunities, please contact Louise Wood or Stacey Hopkin Tel: 01224 577250 or visit www.oilandgasuk.co.uk/new/events
We are delighted to welcome three new members to Oil & Gas UK: Fairfield Energy Limited, Ithaca Energy (UK) Limited and RBG Limited.
For more information on how to become a member of Oil & Gas UK, please contact Frances Russell on Tel: 020 7802 2400 or Email: [email protected]
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Want to help shape the future of the UK oil and gas industry?Want to get your views across to today’s captains of industry?
Here’s your chance!The Oil & Gas UK Next Genera�on Conference is an opportunity for young professionals working in the oil and gas industry to think innova�vely about the key issues affec�ng the UK con�nental shelf. This is your chance to get across your ideas about the industry’s direc�on to its current leaders.
Four talented young speakers will present on:
Industry Skills, A�rac�on & Reten�on - Sam Howard, project manager at OPITO Oil & Gas AcademyHealth and Safety - Jessica Burton, Oil & Gas UK business analyst Business and Commercial Drivers in a Compe��ve UKCS - Mike Mair, project manager at PSNEnvironment - Emily Ferguson, geologist at Maersk Oil North Sea UK
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Working with young people to build a sustainable future for the UK oil and gas industry
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Date: Wednesday 23 April 2008Venue: Aberdeen Exhibi�on & Conference CentreTime: 9.00am – 5.00pm (followed by networking recep�on)in associa�on with SPE Young Professionals Programme
