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Setting the standard

24th October 2018

Created to stimulate the North Sea oil and gas sector that was struggling with falling production, high costs and the impending burden of decommissioning, the UK Oil and Gas Authority has become the de facto standard for a modern regulator

BP's Andrew platform
This module will handle production on BP’s Andrew platform tied-in from the nearby Kinnoull field and is one of three reservoirs that are being developed as part of the rejuvenation of the Andrew area

Five years ago it was recognised that, whilst the UK’s oil and gas industry was one of national importance and makes a substantial contribution to its economy, energy security and employment, it was facing unprecedented challenges in a very different exploration and production environment compared to when production peaked 13 years previously.

In view of that dilemma, in 2013 the UK Secretary of State for Energy and Climate Change announced a review of UK offshore oil and gas recovery and its regulation, led by Sir Ian Wood.

One of the outcomes of that report was the formation of the Oil and Gas Authority (OGA) to regulate, influence and promote the UK oil and gas industry to maximise the economic  recovery of the UK’s oil and gas resources. The OGA was formed in 2014 and became an Executive Agency in April 2015, at the heart of the oil price crash.

Since then it has revitalised and refocussed the UK Continental Shelf (UKCS) to such an extent that other regulators around the world are eyeing its strategy. “We have got lots of interest from other regulators and industry about how they can use what we have been doing as a template for regulators around the world, and how other regions can use us as an impetus to prove some actions that might stimulate activity elsewhere in the world,” Nick Richardson, head of exploration and new ventures at OGA, says.

Back in 2014 the UKCS had many problems. It had high operating costs in the region, production efficiency was low, so assets were not being maintained very well. There was not a focus on delivery. There was a real low and a real depression in the industry; exploration was certainly at an all-time low, and everybody thought that this was the end. Lots of people decided they would pack all their bags and leave.

“In terms of the fiscal regime, there was a big problem,” Richardson says. “The UK Treasury had a history of putting tax rates up and down depending on the oil price, and so there was no faith in the fiscal regime and whether they could make a decent profit margin. Obviously, that was something that needed to be fixed.

“There was in some areas a lack of vision, so what was the long-term strategy? Did we have the right leaders in place who could drive change? And I would say no, in many areas we did not. “Commercially, there was a viper’s nest. We had many cases of dysfunctional joint venture groups, where one group within that group was working against another group, or one party wanted to extract as much value out of the other joint venture partner as they could; there was a real feeling of mistrust in some of those groupings.

“Then there was the looming decommissioning headache in the North Sea; aging infrastructure, production was down on many, many fields. What on earth could we do about that? There was a cost to the state as well because of the way the tax system had been set up. Many assets were in the wrong hands, companies did not want to maintain them, and the technology was simply outdated. We had facilities held up by scaffold poles offshore, and some safety issues that came with that as well.”

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