VALUE BEYOND VOLUME PAGE 12 DERISKING THE UKCS DRIVING RESULTS PAGE 19 STATOIL STRATEGY UKCS - TOM DREYER PAGE 29 THE UKCS: COLLECTIVE CLOUT THE WOOD REVIEW: HOW SIR IAN WOOD’S FINDINGS INFLUENCED THE UK’S 2014 BUDGET PAGE 21 UKCSAUGUST 2014 2 Foreword from the Scottish Government Scotland has given birth to many creative and innovative companies capable of identify- ing growth opportunities in overseas markets. With exports of oil, gas and petroleum worth more than £30bn in 2012 Scotland has proven to be a main player in international exports. I have met many of these companies. They are in many cases leading the world in the provision of new technologies and product solutions. By helping the industry secure the necessary human capital and skills, by supporting inno- vation and technology deployment to boost recovery rates, by assisting more companies into new markets and by delivering investment in key infrastructure, Scotland’s Oil and Gas Strategy to 2020 aims to maximise future opportunities. The government will continue to work closely with the sector to deliver excellent services, drive growth and support the on- ‐going success of an industry that has powered the economies of Scotland and the UK over the last 40 years, and which can continue to be a key driver of prosperity in these islands well into the century. Fergus Ewing MSP - Scottish Government’s Minister for Energy, Enterprise and Tourism 3 Foreword from the University of Aberdeen Investment in the UK’s Continental Shelf (UKCS) reached an all-time record of £14.4 bil- lion last year and could be £13 billion in 2014. Although much of this increase was a response to cost inflation, this high investment level shows that companies believe in the future of the UKCS. Over 20 billion barrels of oil remain to be recovered, but production has been falling sharply and exploration is at historically very low levels. The right fiscal and licensing/regulatory regimes are crucial to increasing current recovery rates and ensuring new exploration to tap the full potential of this mature basin. Increas- ing exploration, discovery, and production levels will require a major effort, featuring both tax incentives and cost-reducing, productivity enhancing research and development. Implementation of the main ideas in the Wood Review is also important. Innovation and value-adding technologies are central to Aberdeen’s role as the energy capital of Europe and a global centre of excellence in the oil and gas industry. The revi- talization of the UKCS will be strengthened by new initiatives that combine academic knowledge and industrial know-how, as well as by a clear taxation, licensing, and regula- tory regime. I appreciate this initiative by Focus Reports to shed light on the key industry challenges and opportunities in the UK oil and gas sector in 2014. Alexander Kemp - Professor of Petroleum Economics and Director of Aberdeen Centre for Research in Energy Economics and Finance at Aberdeen 4 Foreword from Oil & Gas UK The UK Continental Shelf has been the birthplace of many of the technologies which drive exploration and production offshore around the world; and the skills and capabilities that exist here certainly represent a ‘centre of excellence’ in engineering, manufacturing and applied technology which will continue to make a significant contribution to the wider oil and gas industry’s efficiency and productivity into the future. Oil and gas produced from the UKCS provides overwhelmingly positive benefits to the UK’s energy security, economy and employment .In the fiscal year 2012/2013, it contrib- uted £6.5 billion in production taxes to HM Treasury and since 1970 the industry has spent over £500 billion through investing in exploration drilling and field developments, pro- duction operations and on decommissioning assets that have ceased production. In the 2014 Budget it was heartening to note that there is evidence that the government has renewed its commitment to supporting the industry in the extraction of oil and gas by reviewing the tax regime to more effectively address the challenges faced by the matur- ing North Sea. Over forty years of operations to explore and extract oil and gas from the UKCS, a world- class supply chain has developed in the North East of Scotland and in strong regional hubs (centres) around the UK. This broad and diverse sector contributes £35 billion to the economy and directly employs over 200,000 skilled jobs.The human element of the oil and gas chain is that which has made it so successful in the North East of Scotland, and indeed across the United Kingdom. I welcome this publication in the Oil and Gas Finan- cial Journal which features companies working within the oil and gas sector in the UK, and represents an account of the ongoing success of the industry, its increasing diversity and capability. For its own part, Oil and Gas UK will continue to highlight the importance of the industry to policymakers, for the benefit of the industry and people who work in and around these valuable resources. Malcolm Webb Chief Executive Oil & Gas UK 5 Foreword from Subsea UK The subsea industry covers a wide range of services and technology: from Pipelines to Remotely Operated Vehicles (ROVs), the scope of the sector is considerable. In the UK, it outperforms any other industry and is now worth almost £9 billion a year. We expect the sector to grow to over £11 billion by 2016, something that will be achieved through further expansion into emerging and existing markets. With deepwater projects underway in Brazil, the Gulf of Mexico, Africa, Australia and Asia, there are a number of opportunities open to British subsea companies looking to internationalise their business. The north-east of Scotland has long been regarded as the test-bed for new technology and the world-leader in subsea. I welcome this report which illustrates the depth of both knowledge and expertise in Aberdeen, as well as the opportunities that lie ahead for our industry. Neil Gordon Chief Executive Subsea UK UKCS Oil & Gas report August 2014 Acknowledgements: Special thanks to Mr. Alex Salmond from the Scottish Government, Mr. Michael Fallon from the UK Government, Mr. Fergus Ewing from the Scottish Government, Prof. Alexander Kemp from the University of Aberdeen, Sir Ian Wood & Bob Keiller from Wood Group, Phillippe Guy from Total, and Martin Rune Pedersen from Maersk Oil for their contribution and support as well as to all the companies involved in the production of this report. 7 CONTENTS The UKCS - collective clout 10 Regulatory rollercoaster; the direction of travel for UKCS governance 12 Value beyond volume; how collaboration is moving the UKCS forward 13 We can’t predict the future, but it’s important to prepare for it 16 An old dog can learn new tricks; innovation as a means to maximize recovery 16 Enduring performance 17 The whole picture; Xcite’s de-risked asset 19 Financial risk 19 Sentinel: On fleet requirements for the North Sea 21 An established engineering presence in Aberdeen 22 Sir Ian Wood, architect of the Wood Review 23 Oil & Gas UK: mission accomplished? 25 Spreading Aberdeen’s expertise across Scotland 27 Statoil’s UKCS strategy 29 The excellence of independents 31 The return of the Gryphon 33 Operating fractured basement reservoirs 34 North Sea offshore service opportunities 36 New service player carves out a niche 38 The importance of reservoir monitoring 40 HSE: a leading priority in the path to de-risking 42 The challenges of building an enterprise software company in Scotland 44 Assessing the UK’s subsea potential 45 Growing demand for asset integrity services 47 Publisher: Ines Nandin Project Director: Chiraz Bensemmane & Martijn Jimmink Project Coordinator: Alina Manac Editorial: Fraser Wallace Project Developer: Marie Kummerlowe Photo courtesy of Ines Nandin For exclusive interviews and more info, plus log onto www.energyboardroom.com or write to [email protected]. Copyright All rights reserved. No part of this publication maybe reproduced in any form or by any means, whether electronic, mechanical or otherwise including photocopying, recording or any information storage or retrieval system without prior written consent of Focus Reports. While every attempt is made to ensure the accuracy of the information contained in this report, neither Focus Reports nor the authors accept any liabilities for errors and omissions. 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