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Calls for more collaboration

Government ‘must share aims of oil industry’

Kevin ReynardGovernment departments need to share the aims and objectives of the oil and gas industry if the North Sea is to develop a viable future, say industry leaders.

Firms have benefited by implementing measures to improve costs and efficiency outlined in the 2014 Wood Review.

But they they need to develop new ideas, and build on the collaboration recommended in the review. This also requires government to set out a clear blueprint for the future of the industry.

These are the findings of a report from PwC, A Sea Change, based on interviews with 37 senior executives in the UK, Holland and Norway in industry, academia and Government.

The report adds that with the “right leadership, innovative strategies, intervention and co-operation between operators, oil field service sectors and government”, the North Sea can provide a few more decades of production.

But it has a two year transformation window in which to ensure a strong, productive and profitable future, says the report.

A robust roadmap is needed to transform the basin, meet short term energy needs and bridge the gap to a lower carbon future – and this will need drive and direction from Government, the Oil and Gas Authority (OGA) and industry.

The report identifies a number of innovative solutions that could help create the seismic shift needed to break any residual inertia and re-invigorate the basin.  This includes:

.        The creation of a super joint venture vehicle, consolidating smaller and fragmented assets under one sole operator. This investment vehicle could drive greater cost-efficiencies, boost bargaining power with suppliers, and enable a more co-ordinated approach to decommissioning of the asset pool.

.        Consortium financing with collective counterparty risk, focusing on area based outcomes rather than asset based ones. With many reflecting that traditional providers of capital had retreated as oil prices plummeted, creating inertia in funding new projects and deals, this could break the gridlock.

.        A Government backed decommissioning fund or equity-backed guarantee scheme to help smaller companies cover their letter of credit requirements. With Government assuming a degree of risk with the majors, independents can focus on squeezing the last drops of oil and gas from the basin.

Alison Baker, PwC’s UK and EMEA oil and gas leader, said there was “a real sense of urgency” to create “one last cycle of success”.

But this was matched by a “level of frustration” at the fundamental issues that need tackling to avert the risk of rapid and premature decline.

“Part of the solution is for government agendas across Treasury, DECC and the OGA to be much better aligned to the needs of the whole industry, from super majors to smaller oil field services firms,” she said.

“The majority of respondents also want government to take a lesson from Norway and Saudi Arabia and be bold in setting out their blueprint for the future.  This must incorporate onshore activity as well as defining how the North Sea basin will evolve in the short to medium term and, crucially, how the end game – and subsequent transition to a low carbon landscape – will be managed.”

Kevin Reynard (pictured), PwC office senior partner in Aberdeen, added: “The North Sea still has a strong couple of decades ahead of it but the decisions to sustain it in that period need to be taken quickly.

“It’s vital that governments and industry come together and agree a blueprint for action. No one company standing alone can weather this but if all interested parties join forces to address the issues then there is hope for the North Sea. Government and industry have started to come together but this can be built on for the future.”

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