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UPDATE 1-Britain needs new North Sea regulator urgently -review

Mon, 11th Nov 2013 15:13

By Sarah Young

LONDON, Nov 11 (Reuters) - Britain urgently needs to set upa new regulator to encourage oil and gas companies tocollaborate and counter plunging North Sea production rates, agovernment-commissioned review said in its initial findings onMonday.

The government launched the review of the North Sea, thefirst in more than 20 years, after output plunged by a thirdfrom 2010 to 2012. While production has been in decline since1999, the big drops in recent years have acted as a drag oneconomic growth.

Led by Ian Wood, former chairman of FTSE 100 oil servicescompany Wood Group, the review outlined a plan to pump anextra 3 billion to 4 billion barrels of oil equivalent (boe)than would otherwise be extracted over the next 20 years.

The plan involves establishing an "arm's-length" regulatorybody that would drive collaboration between different companies,maximising the barrels pumped.

Wood emphasised that the plan should be implemented urgentlyto battle the North Sea's deteriorating production.

Britain faces a race against time to find and develop newfields and hook them up to existing pipelines and platforms orrisk that the infrastructure is dismantled and oil is left inthe ground, because the finds are too small to warrant buildingnew facilities.

"Infrastructure - that's our Achilles heel right now -trying to consolidate infrastructure we have, get it best-used,"Wood said at a news conference.

The extra barrels, equivalent to around seven extra years ofproduction at current daily rates, would bring over 200 billionpounds ($320 billion) of additional value to Britain's economy,the review said.

INEFFICIENCY

Industry experts have long said that Britain's North Sea,with its large number of operators, would be more efficient ifthere were more coordination between smaller companies and iflarger companies were encouraged to allow other parties accessto infrastructure they own.

With the North Sea now in its fifth decade of pumping oiland gas, new fields tend to be small and costly to exploit,while old platforms and pipelines need more maintenance, cuttingoutput and profits. The number of operating fields has risen toaround 300-plus from 90 in the 1990s.

The biggest oil companies, such as BP and Shell, are still active in the region but are concentratingon new projects off the West of Shetlands. The older areas,where there is less oil left to be extracted, are managed bydozens of smaller companies such as EnQuest and IthacaEnergy.

Under the review's recommendations, the Department of Energyand Climate Change would set up the body with "additionalpowers". The companies, which would fund the new regulator,would also commit to collaborate in certain areas such assharing pipelines.

"My soundings in the industry show that the oil industry isfully up for this; I'm not encountering any negative comment,"Malcolm Webb, the chief executive of the industry group Oil andGas UK, said at the conference.

Companies and government will now have an opportunity tocomment on the initial findings before Wood publishes his finalreport early next year.

Industry experts at a conference in September agreed thatcollaboration was important but also said that tax incentiveswould be needed to squeeze every last drop of oil out of theNorth Sea.

Recommendations on taxation, however, were not within thescope of Wood's review.

Wood, who met with the finance minister George Osborne aspart of his research, said he was confident the finance ministryrecognised its role in prolonging the life of the North Sea.

"We have had some very helpful discussion with them, and wewill be passing them some further views. I think they will beprepared to become involved in a very constructive way and tryto deliver this programme," Wood said.

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