House of Commons Energy and Climate Change Committee UK offshore oil and gas First Report of Session 2008–09 Volume II Oral and written evidence Ordered by The House of Commons to be printed date 17 June 2009 HC 341-II Published on date 30 June 2009 by authority of the House of Commons London: The Stationery Office Limited £16.50 The Committee Name The Energy and Climate Change Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Energy and Climate Change and associated public bodies. Current membership Mr Elliot Morley MP (Labour, Scunthorpe) (Chairman) Mr David Anderson MP (Labour, Blaydon) Colin Challen MP (Labour, Morley and Rothwell) Nadine Dorries MP (Conservative, Mid Bedfordshire) Charles Hendry MP (Conservative, Wealden) Miss Julie Kirkbride MP (Conservative, Bromsgrove) Anne Main MP (Conservative, St Albans) Judy Mallaber MP (Labour, Amber Valley) John Robertson MP (Labour, Glasgow North West) Sir Robert Smith MP (Liberal Democrats, West Aberdeenshire and Kincardine) Paddy Tipping MP (Labour, Sherwood) Dr Desmond Turner MP (Labour, Brighton Kemptown) Mr Mike Weir MP (Scottish National Party, Angus) Dr Alan Whitehead MP (Labour, Southampton Test) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/parliamentary_committees/ecc.cfm. Committee staff The current staff of the Committee are Tom Goldsmith (Clerk), Robert Cope (Second Clerk), Francene Graham (Senior Committee Assistant) Luisa Porritt (Committee Assistant) and Estelita Manalo, (Office Support Assistant) and Hannah Pearce (Media Officer). Contacts All correspondence should be addressed to the Clerks of the Energy and Climate Change Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 2569; the Committee’s email address is [email protected] Witnesses Wednesday 11 March 2009 Page Steve Jenkins, Chairman, Oil and Gas Independents’ Association, Alan Ev 1 Booth, Chief Executive Officer, Encore Oil, Martyn Millwood Hargrave, Chief Executive Officer, Ikon Science Martyn Harper, Head of Sustainable Development and Dr Sharon Ev 9 Thompson, Senior Marine Policy Officer, Royal Society for the Protection of Birds Thursday 19 March 2009 Professor Alexander Kemp, University of Aberdeen Ev 16 Malcolm Webb, Chief Executive and Paul Dymond, Operations Director, Oil Ev 22 and Gas UK Wednesday 25 March 2009 Mike O’Brien MP, Minister of State, Simon Toole, Head of the Energy Ev 32 Development Unit Licensing, Exploration and Development, and Jim Campbell, Director of the Energy Development, Department of Energy and Climate Change List of written evidence 1 ABB Ev 45 2 AMEC Ev 47,49 3 BG Group Ev 50 4 BP Ev 54,56 5 British Rig Owners’ Association Ev 57 6 Carbon Capture and Storage Association (CCSA) Ev 60 7 Centrica Ev 60, 64 8 Department of Energy and Climate Change Ev 66, 83,84 9 Joint Nature Conservation Committee Ev 91 10 Professor Alexander Kemp Ev 93 11 Oil and Gas Independents’ Association (OGIA) Ev 101,104,107 12 Oil and Gas UK Ev 108, 115 13 Royal Society for the Protection of Birds (RSPB) Ev118 14 Scottish Council for Development and Industry (SCDI) Ev 121 15 Shell Ev 129,133 16 Total Ev 134 Energy and Climate Change Committee: Evidence Ev 1 Oral evidence Taken before the Energy and Climate Change Committee on Wednesday 11 March 2009 Members present: Mr Elliot Morley, in the Chair Nadine Dorries Paddy Tipping Miss Julie Kirkbride Dr Desmond Turner Anne Main Mr Mike Weir Sir Robert Smith Dr Alan Whitehead Witnesses: Mr Steve Jenkins, Chairman, Mr Alan Booth, Chief Executive OYcer, Encore Oil, and Mr Martyn Millwood Hargrave, Chief Executive OYcer, Ikon Science, Oil and Gas Independents’ Association, gave evidence. Q1 Chairman: Good morning, gentlemen, welcome Mr Jenkins: They are largely due on discoveries, and to the Select Committee for Energy and Climate also an estimation from the geology and geophysics Change. We are pleased to see you. As you know, we of what prospects might contain. We risk those are having an inquiry into oil and gas reserves in the prospects, and those are the risk numbers that are North Sea and west of Shetland, and we very much being quoted—but really it is less than 10 billion welcome your evidence. For the benefit of the barrels it has got commercial plans to develop. Committee would you say a word about who you are and your role in the organisation? Mr Jenkins: I am Chairman of the Oil and Gas Q4 Chairman: What are the restraints on those Independents’ Association. We have got commercial developments? Is it the price of oil; is it approximately 30 members. It is the smaller the overall costs of the exploration; or is it the companies in the UK, mostly non-producers. We technical challenges? have representatives from foreign companies who Mr Jenkins: Currently,we are faced with a very high- have UK subsidiaries operating here. We are mostly cost environment. The North Sea is a very high-cost interested in the exploration and appraisal. Some of environment to work in. We have got prevailing our members are developing hydrocarbons but most costs from last year, when oil was $147 a barrel; and are appraising and developing. those costs as far as drilling is concerned, have not come down yet. We are still looking at perhaps Mr Booth: I am Alan Booth, a director of the Oil and $400,000 a day for a rig. We are seeing some coming Gas Independents’ Association and also the CEO of down, but most of those are long-term contracts. a small UK oil and gas exploration company called Companies such as ours rely on taking one or two rig Encore, which we established in 2005. slots to drill, and we are having to pay very high Mr Millwood Hargrave: I am Martyn Millwood prices for that. As far as development is concerned, it Hargrave. I am a member of the OGIA. I run a is access to infrastructure—the UKCS infrastructure company called Ikon Science, which is a technology with EAG. It was not designed to last this long and provider and service provider to the business, so from a smaller company point of view we have to get really representing that part of the business. access to that infrastructure, to put the oil in to bring it ashore. Q2 Chairman: Thank you very much. If I could kick Mr Booth: If I could add to some of Steven’s oV, gentlemen, it was very interesting to look at comments, the main issue, as you quite rightly point some of the suggestions about what could be out, is the price of oil, which is a global commodity available within the Continental Shelf in terms of oil and is the same pretty much around the world. What and gas. Presumably, over the years there has been a is specific to the UK increasingly, in terms of finding certain degree of work done on mapping and seismic these new reserves, is access to capital to explore for analysis; how much confidence do you have in terms them. We have put in our submission that the nature of what you know is on the Shelf, both in terms of of the companies prepared to explore has changed your current reserves and also the potential for the significantly, simply because of the nature of the future? basin. We are of course reliant on getting equity from Mr Jenkins: At the minute we have less than nine the capital markets now, and when we do find things billion barrels that have got commercial plans to getting debt, debt markets—and, as you know, that Y develop. You probably have heard numbers of up to is very di cult at the moment. What all investors 25 billion barrels. like to see is stability and predictability in any regime in which they invest. The UK has not always been an area where they have had a great degree of comfort. Q3 Chairman: Yes, quite significant numbers, yes, in The oil price is obviously very important, but it is some of the briefings, yes. about access to infrastructure when you do find Ev 2 Energy and Climate Change Committee: Evidence 11 March 2009 Mr Steve Jenkins, Mr Alan Booth and Mr Martyn Millwood Hargrave hydrocarbons. Your investors want to know that if is not really why it was put in place, but that is the you find them you can develop them, and they are nature of—a direct example of what is happening going to get a return for the risk they take. Those are right now. the principal issues that drive activity here. Q9 Chairman: If there were going to be some changes to this code, what would be your priority? Q5 Sir Robert Smith: I must first declare my interest: Mr Booth: I think you have to understand before as a shareholder in Shell, which is in the Register of you start exploring for hydrocarbons and wanting to Members’ Interests; and Vice Chair of the All-Party develop and appraise hydrocarbon accumulations, Group for the OVshore Oil and Gas Industry. In that what the terms and conditions will be to go across role, we went on an oVshore northern seas visit, and that infrastructure. What you do not want to do is accommodation was sponsored by various oil find your hydrocarbons and then you find someone companies.