Memorandum submitted by the British Rig Owners' Association (UKOG 7)

 

 

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