Memorandum submitted by the British Rig
Owners' Association
EXECUTIVE SUMMARY
The British Rig Owners' Association represents
mobile offshore units which include both drilling rigs and accommodation
units. We believe that mobile offshore units have an important
role to play in the effective and sustainable future exploitation
of the UK's hydrocarbon reserves, and that regulatory and fiscal
mechanisms must be appropriate in order to enable this to occur.
1. INTRODUCTION
1.1 We, the British Rig Owners' Association
(BROA), are an industry association representing owners and operators
of mobile offshore platforms, of various types, in the North Sea.
The fleet belonging to our membership includes drill ships and
FPSO's, maintenance platforms and accommodation units. Although
analogous in many regards with fixed platforms, the needs and
capabilities of mobile units are specific and unique in various
areas. Below, we address each of the seven questions which you
posed highlighting those issues which are particularly pertinent
to the mobile units we represent.
2. RESPONSES
TO SPECIFIC
QUESTIONS
2.1. How can the UK's remaining offshore
oil and gas reserves be exploited most effectively? What barriers
are there to exploiting such reserves? What steps need to be taken
to unlock resources west of Shetland?
2.1.1 The primary determinant factor in
the exploitation of further resources is the economic viability
of doing so. When considering this, it must be borne in mind that
the safety of personnel involved in the operation and levels of
certainty regarding the future financial and fiscal climate are
key controlling parameters. Where there is a necessity to develop
new technologies for a specific task, a high capital cost is usually
involved and, particularly in the current economic environment,
this is associated with a high risk if any unnecessary uncertainty
exists in the operating environment. While the UK's mobile offshore
units are well suited to exploratory work, they are subject to
a unique range of legislation, fiscal and regulatory concerns
where certainty is needed in order to encourage further development.
Low oil prices are a barrier to exploiting the UK's remaining
reserves and while a short period with prices at current levels
will probably not have much effect, if prices stay low for a prolonged
time then smaller operators may be forced to abandon some of the
more marginal fields without exploiting the last pockets of oil
and gas. It should be noted, in the context of the points above
that operations west of Shetland are in harsh environmental conditions
and rigs and production facilities capable of operating safely
in such conditions are more expensive both to build and to operate.
2.2. What can be done to minimise the environmental
impact of exploiting the reserves? How should this be encouraged
and/or financed?
2.2.1 It should be noted that the industry
has a strong commitment to environmental management and the minimisation
of unwanted impacts; this has been demonstrated in recent years
by the employment of an increasing number of environmental specialists
within the sector. In turn, this has led to a growing understanding
of the subjects involved and an ability to maintain good currency
amidst a field of developing knowledge. Technology plays a major
role in controlling environmental impact, which is highly dependent
upon the operations in question where mobile units are concerned.
2.2.2 Absolutely central, however, to ensuring
a low impact on the environment is a clear understanding of the
different potential impacts, their severity and relation to each
other. This is a broad oceanographic question and specific to
the geographical area of operation. Among other considerations
are the effect of localised interventions on wider ecosystems,
the behavioural response of organisms found in the area and the
expected action of winds, tides and ocean currents in the area.
In general, the environmental impact on the local area of extraction
is believed to be low, however the provision of clear information
as discussed above from the wider scientific community to the
specialists within companies may assist in ensuring this. It should
be noted that detailed environmental assessments already form
part of the decision making process when choosing locations. Furthermore,
the provisions contained within the impending Marine Bill are
believed to provide a robust framework which will ensure the environmental
appropriateness of exploitation.
2.2.3 Mobile units have already been steadily
upgraded over the years to reduce environmental impact, particularly
in terms of lessening the probability of hydrocarbon spills. In
addition, it should be noted that mobile units are also classed
as ships and so are subject to the full range of environmental
legislation emanating from the International Management Organization
(IMO) including the ISM Code which places upon vessel owners the
responsibility for "continuous improvement".
2.3. How effective is the current fiscal
and regulatory regime in which the industry operates?
2.3.1 It has been previously mentioned that
mobile offshore units are subject to a unique regulatory regime.
When on station and operating, they fall under the authority of
the Health and Safety Executive, as do fixed installations, but
at other times they are within the remit of the Maritime and Coastguard
Agency (MCA) and international regulations for ships. BROA maintains
continuing and positive interaction with both the HSE and the
MCA, and addresses issues directly with them. However, there are
some areas where the certainty which is so required by operators
appears to be lacking, or where decisions are made which appear
to be disproportionate or unwarranted while resulting policies
are implemented without statutory support. There is no doubt as
to the technical competence of the HSE and the MCA to provide
an effective and positive regulatory regime, but both appear to
be suffering from resourcing issues, in particular staff numbers,
at the current time. Discussions and debate regularly focus upon
the chargeable element of the HSE's work, the proportionality
of the charges and the subsequent use of the finances thereby
acquired. It should also be realised that a number of BROA's members
are becoming increasingly involved in the offshore renewable energy
sector and it appears that there is a lack of regulatory equality
in such work between those who do and those who do not also engage
themselves in the offshore oil and gas industry, where those who
do must comply with a significantly more strenuous regulatory
regime.
2.3.2 Where the fiscal regime is concerned,
this is related to the answer given in question 1 (para 2.1.1).
In order to commence an operation with a sound business plan,
the industry needs a good degree of certainty with regard to financial
impacts on that operation throughout its lifetime. There is a
widespread perception that government is continually increasing
the fiscal burden on operators and this obscures that much needed
clarity. The regular proposals for tax increases and regular above-inflation
increases in HSE's charges do not encourage newcomers to enter
the North Sea which is already seen as a high-cost region in which
to do business.
2.4. What effect is the recession and the
credit crunch having on the industry? What is the impact on the
financing of exploration and development?
2.4.1 The current financial troubles arrived
at a time of high demand for the industry and a high oil price,
the reversal of these trends has, therefore, been significant;
drilling and exploration programmes have been cut back and there
are currently an increasing number of Mobile Offshore Drilling
Units being taken out of operation. Nonetheless, the industry
remains positive, having previous experience of financial difficulties
and variations of the oil price. To maintain activity among the
offshore industry's mobile units, however, it is important to
enable accurate financial forecasting through fiscal and regulatory
regimes. Such measures have the potential to diminish the uncertainty
implicit in undertaking the risks described in our response to
question 1 when exploring and developing resources, and to address
the concerns discussed in answer to question 3.
2.5. How are the skills needs of the sector
being met? How transferable are those skills?
2.5.1 The skills required in the mobile
offshore sector are, in general, shared with those of the maritime
and fixed offshore sectors. As such, there are established training
pathways for personnel suitable for employment by BROA's members.
Equally, skills gained while working on the units which BROA represents
are often transferable to other arenas such as those mentioned.
Some drilling companies operate training programmes, although
mostly for drilling personnel. Despite that, staffing and attracting
a talented workforce to this area of the industry remain high
priorities with further progress needing to be made. Although
the industry is considered to be one inside which training, development
and progression can take place, there is a real need for a continuing
supply of recruits with a high quality of traditional grounding
in the technical and scientific disciplines involved, as well
as knowledge and appreciation of the more modern technologies
in use today. BROA has recently taken part in a short film for
television which aims to promote awareness of the maritime and
offshore industries.
2.5.2 While in the past technical staff
were largely recruited from the Merchant Navy or the forces, currently
the demand is supplied from Eastern Europe and Russia. The recent
boom in exploration led to skilled personnel being at a premium,
particularly certificated engineers, electricians and electronics
specialists.
2.6. What are the implications of an ageing
existing infrastructure on the security of supplies from the North
Sea?
2.6.1 The hypothesis that an aging infrastructure
is a poor quality one is not necessarily correct in itself. Offshore
platforms and units are high value resources which are subject
to rigorous maintenance and upkeep programs. The maintenance and
repair, as well as the initial design life of a mobile offshore
unit are more significant factors in, and indicators of, its operational
state and capability than a simplistic judgment based upon its
age. Furthermore, recent investment in new infrastructure has
been taking place, and one of the unique advantages of mobile
units is the ability to move them from their stations to coastal
or port locations for refit, upgrading and maintenance. They are
subject to regular docking, inspection, overhaul and modification,
and are therefore not as susceptible as other infrastructure to
age-related degradation. With regard to our members, therefore,
the impact of this is not believed at this time to be significant.
2.7. Is the right policy framework in place
to manage the decommissioning of that infrastructure as resources
are depleted?
2.7.1 As has been previously mentioned,
the industry has a high level of commitment to environmental matters;
mobile units will also be subject to the International Maritime
Organization's imminent Draft International Convention For The
Safe and Environmentally Sound Recycling Of Ships (to be agreed
in May 2009). This will include requirements to achieve those
objectives such as "green passports" which detail hazardous
materials within their structures. These regulations will result
in a more detailed regime for new mobile units and it is expected
that, until such times as the new convention enters into force,
owners will continue to abide by the industry good practice guide
for ship-dismantling. Given the mobile nature of the units we
represent it is unlikely that many will be sent for recycling
to either UK or European yards.
March 2009
| 
