Oil and Gas Authority: Quarterly Update

Over the last few months the Oil and Gas Authority (“OGA”) has issued a number of publications. This has included a refreshed set of Asset Stewardship Expectations and the OGA’s first Wells Strategy. The OGA has also published its overview for 2019/2020 in which it has highlighted its focus for the future. This article seeks to summarise the available information and the OGA’s published objectives and priorities

Asset Stewardship Expectations

The OGA has launched an updated set of stewardship expectations (the “Expectations”). The ten Expectations (including two new Expectations - “Well activity performance” and “Commercial alignment and delivery”) are designed to promote industry good practice and support maximum economic recovery (“MER”) across the entire exploration and production lifecycle. The Stewardship Expectations are in many ways the clearest articulation of the OGA’s interpretation of what the MER UK Strategy means for operators and others on the UKCS.

The purpose

The Expectations, developed jointly with industry, describe how a licensee/operator may meet its obligations set out in the MER UK Strategy. They are a key element (together with the Annual Stewardship Survey, Performance Benchmarking, and Tiered Stewardship Reviews) of the OGA’s Asset Stewardship Strategy, in support of the overall objective of MER. The Expectations are not intended to have a binding legal effect, but rather set out for industry expectations which, if followed, will help to facilitate delivery of the MER UK Strategy. However, where the OGA considers a party’s performance to have fallen short of the Expectations, this may lead the OGA to consider whether the relevant person is complying with its obligations under the MER UK Strategy. Where an issue may have a MER UK impact and has not been resolved by stewardship, active facilitation may be required. This marks the start of the OGA’s ‘measured escalation’ process which may ultimately result in sanctions for failure to comply with licence obligations or the MER UK Strategy.

The update

The first set of Expectations were published in October 2016, coupled with supporting implementation guides published in June 2017 providing more detail on each of the Expectations.

Two of the expectations in the updated set are new:

1. Well activity performance. This promotes successful delivery of well activity throughout the lifecycle using systematic deployment of existing practices and learning during planning and execution phases. It ties in to the OGA’s recently published Wells Strategy (discussed below).
2. Commercial alignment and delivery. This promotes the adoption and implementation of existing good commercial practices to enable activity to progress in a manner and pace consistent with licensees’ obligations in the MER UK Strategy. Notably, it sets the OGA’s expectations for how long it should take to agree commercial agreements in the UKCS – the periods of no more than 6 months for agreements including CTIAs and TPOSAs, DSAs and UUOAs may seem ambitious to many with experience of negotiating such agreements in the sector although of course the 6 month period is consistent with the ARN process under the Infrastructure Code of Practice.

In order to make space for these new expectations, two previous expectations have been removed (at least as separate expectations, although it is likely that some of their content has been subsumed in other expectations or is now covered by other guidance on retention and disclosure of information and samples) – these are Expectations regarding (i) Information Management and (ii) Licence Activity, Decision Points and Milestones.

The OGA plans to champion these revised Expectations with a six-month intensive engagement programme in the second half of 2019 using events, operator visits and meetings. The full set of Expectations can be found here.

OGA’s First Wells Strategy

The OGA has published a “Wells Strategy” which provides a framework for how the OGA and industry will work together to deliver increased activity and improve performance. The Strategy can be found here.

The Strategy builds on the findings of the OGA’s first Wells Insights Report published in November 2018 which showed:

• Drilling activity is on the decline

• No improvement in drilling performance in the last 10 years

• Huge value from existing wells

• 30% of active wells are shut-in

• Surveillance and intervention rates are too low

• Over 200 open water suspended Exploration & Appraisal wells (ave. age 27 years)

• Over 150 wells per year expected to be Plugged & Abandoned (fully decommissioned) (P&A)

In order to realise the significant remaining potential of the UKCS, the wells community will have to reduce well construction costs, increase recovery from wells and minimise well decommissioning (P&A) costs at the same time as protecting those reservoirs with potential future use. Increased new well activity and improved well management are identified as vital components to realising Vision 2035, delivering an additional 7bn boe compared with the 2015 projection.

The Wells Strategy sets out three key areas of focus covering:

1. Regulatory compliance with MER UK, licence conditions and data reporting and retention obligations.
2. Business processes to increase well activity to find and deliver the significant potential resources from the UKCS.
3. Performance improvement of all activities throughout the well value cycle, from design to well decommissioning. This includes a look at plugging and abandonment, reducing costs and improving recovery business processes to increase well activity, well performance and regulatory compliance, and provides an outline of how these objectives will be delivered.

The Strategy represents a step-change in the way the well cycle will be managed by industry and stewarded by the OGA. It builds on work carried out by many industry groups. Successful implementation of the Strategy is dependent on support from all parts of industry working together to develop work programmes, set challenging targets, share knowledge and track delivery.

Implementation

The OGA will use its stewardship process to implement the Strategy. Its Asset Stewardship Expectation on Well Activity Performance (SE-04) defines the OGA’s expectations in relation to the well value cycle and the Stewardship Survey will continue be used to collect data which will be analysed and shared with industry. In addition, tier reviews with operators will be undertaken to facilitate the dissemination of specific benchmark data and to invite discussion on activity levels and performance. It is expected that joint industry targets will be agreed, KPIs will be defined and set in a number of areas jointly with industry, and that the OGA will support industry to deliver these targets.

The OGA will seek to share information on progress with this Strategy, including by:

• publishing an annual Wells Report to share wells related data and insights;
• tracking and publishing industry progress against agreed targets;
• collecting and disseminating data relating to the strategy focus areas;
• engaging directly with Licensees through Stewardship reviews;
• supporting industry efforts to share knowledge; and
• use of the National Data Repository to ensure that industry, academia and the wider public have ready access to timely and transparent data.

OGA Overview 2019/2020

The OGA has published its overview for 2019/2020, highlighting significant changes in the industry over the past five years. These include increases in current production, production efficiency and a 3.9 billion barrel increase in projected production together with a sea change in the commercial environment, with 35% of production having changed hands, much of it from super-majors to new players including private equity and infrastructure funds.

The OGA notes that the UKCS is now internationally competitive in terms of returns, payback, break-even and value. The OGA’s current priority is identified as working with the government and oil and gas companies to establish the industry’s role in the energy transition.

The OGA is also continuing to focus on digital transformation following its successful launch of the United Kingdom’s first offshore oil and gas National Data Repository (“NDR”) for petroleum-related information and samples in early 2019. The OGA Priority Themes which were set out in 2015 have been refreshed in 2019, to refocus on the next five years.

OGA’s role in the energy transition

The OGA has stated that it is focused on solutions such as Carbon Capture and Storage and is leading a cross-regulator project reviewing opportunities for deeper offshore energy integration with renewables, gas to wire, hydrogen and offshore energy hubs.

The OGA’s current role includes:

• licensing of carbon storage and advice on suitability prior to decommissioning;
• continuing to work on Enhanced Oil Recovery; and
• having an understanding of offshore energy integration, including hubs and electrification.

The OGA is also currently working with industry, government and other regulators in the “UKCS Energy Integration Project” in which parties will explore the potential for a more integrated offshore energy sector. The aim of the project is to build a closer relationship between oil and gas production and offshore renewables.

OGA Priority Themes

The OGA’s priority themes all have associated KPIs - they are:

• Revitalising exploration – the OGA aims to achieve 200 mmboe of discovered recoverable reserves based on a five year rolling average;
• Enhanced asset stewardship where the aim is 80% average production efficiency across the basin and costs within 15% of the 2017 baseline;
• Regional development – 300 mmboe a year moved from 2C to 2P status;
• Improved decommissioning efficiency measured in terms of the now well-known 35% cost reduction target but also for 90% of all assets, an AACE class 3 estimate (or better) should be submitted to the OGA at least three years before each planned decommissioning activity;
• People, processes and systems measured in terms of a 5-percentage point improvement in staff engagement.

Measuring Success

The OGA has developed a success stories tracker to allow impact to be quantified using three key metrics:

1. Expected future volume of oil and gas production;
2. Capital expenditure committed to new projects; and
3. Reduced or avoided costs through improved or accelerated outputs.

The success stories tracker has recorded 377 success stories between 2015 and 30 June 2019 across the OGA in partnership with industry and government. The tracker shows the impact on the industry relative to what would have occurred in the absence of support or intervention, focusing on factors such as time saved to the industry and costs mitigated. The tracker also highlights the action used by the OGA.