Development of United Kingdom North Sea Oil and Gas Stephen Dow CEPMLP, University of Dundee

Conditions are different… UK oil and gas context First gas finds in the 1960s No serious oil production until late 1970s High cost province – not attractive until after 1973 Reserve around 30bn barrels The easy half has been produced The difficult half (small fields found further from infrastructure) is left…

Conditions are different… Small fields are not attractive to big companies Old fields are in decline – big companies are selling to small producers who can afford to extract more oil Big producers have high overheads – their economic decommissioning point is earlier There is no UK state company Regulatory system is designed to manage decline

Policy goals To get the rest of the oil out before the infrastructure (especially main pipelines) gets too old Develop a contracting (service) industry which will prosper internationally as the local industry declines in volume Safety; environmental protection Tax…

Legal regime UK has petroleum licences Transfers state right to a producer (or group) State right offshore is to explore and exploit Not full ownership Contrasts with full ownership onshore Acreage award is highly transparent Criteria and scorecard set in advance

The UK legal regime is slightly different from most… Licence transfers facilitated by Minister (govt) Master Deed system Liability regime is across whole jurisdiction Industry mutual hold harmless Standard form documents JOA has no pre-emption Field agreement approval system

Even licences are slightly different… regime designed to force pace of work Licence is paid for in work not cash No signature bonus Three stages of a licence – and relinquishment between stages Fallow fields and re-licensing of surrendered acreage Frontier area licence “promote” licence

Onshore… UK has had onshore oil and gas law since 1918 Prospectivity extremely low Hardly any production… BUT THERE MIGHT BE SHALE GAS…. Shale gas (non conventional) discoveries are being tested

What does shale gas need in regulatory terms? Unconventional gas (and oil) is characterised by high costs – only attractive at very high oil prices UK is a marginal gas importer – shale gas could bring back gas independence The nasty parts… cost; fracking; and cleaning up the water/fluid UK has a sophisticated regime for environmental protection already

Environmental consents UK has a formidable regime surrounding environmental impact assessment (EIA) Requirement to establish each risk; and then show mitigation of it to acceptable level Shale gas controversy over small earthquakes from fracking Indications are that the risks could be made acceptable to current system Clean up is likely to be the biggest hurdle for industry development

tax UK does not have a resource tax for new fields Old (declining) fields pay a resource tax Attempt to make new small fields attractive! Complicated system – particularly as adjustments to the corporation (company) tax regime have been introduced to capture rent from higher oil prices (supplementary charge) And special corporation tax rates for producers

UK story Initial UK development was quite fast The UK is now studied as an example of… Possible waste of the initial revenues – no oil fund or sovereign wealth fund Initial development around big fields, which encourages infrastructure, which can then be opened to small fields Regulatory changes in an effort to reduce rate of decline as province matures