UKCS Maximising Recovery Review – PwC response

Published at 18:03 PM on 24 February 2014

Plans to introduce a better resourced, more capable and involved Regulator that will encourage greater collaboration with the oil and gas industry and drive more efficiency in exploration, development and production across the UK Continental Shelf (UKCS) have been broadly welcomed today by PwC.

Commissioned by the Department of Energy and Climate Change, The UK Maximising Recovery Review (Wood Report), led by Sir Ian Wood, outlines six Sector Strategies aimed at extending the life span and economic impact of the UKCS and ensuring it’s equipped to better respond to growing competition from international offshore regions.

Michael Hurley, head of PwC’s UK Oil and Gas team, said:

“The Wood Report acknowledges the immeasurable contribution the oil and gas industry has made to the UK economy since the 1960s and delivers a robust strategy to ensure its continuing relevance over the next 30 years, in what is an increasingly competitive international market.

“We believe that an enhanced regulator could fuel positive change across the UKCS, but if it is to do this, it’s vital that it not only has the necessary resources and talent at its fingertips but the bite to make change happen.

“Key to its success, particularly in terms of increasing economic return and enhancing the resilience of the sector, will be the manner in which it’s implemented and the pace in which it can be done. The essential ingredients are all here but the proof, as they say, will be in the pudding.”

Kevin Reynard, senior partner, PwC in Aberdeen, said:

“Collaboration, co-ordination, innovation, infrastructure, technology and talent all feature heavily in the Wood Report, and are issues that have been analysed within our own Northern Lights series.

“The Wood Report addresses the need to improve efficiency across current working practices, from exploration through to production, a challenge many in the industry will recognise. We agree that the industry should be investing in greater innovation in the supply chain - improving contractual arrangements and incentives as well as fast tracking technological enhancements. The role of infrastructure, from rejuvenating ageing assets to investing in new assets, will also be key in in prolonging the life of fields and maximise returns of the basin as a whole.

“However, regulatory obligation may not always be the right course of action. In addressing the technology challenge, specific funding, fiscal and competition hurdles may need to be overcome and the answer to these may require incentives rather than a regulatory stick.

“In the years ahead, it will be essential for the Regulator to set the tone from the top, particularly regarding collaboration to maximise the return from reservoirs and effectively manage the cost of decommissioning. While many will agree that greater collaboration amongst oil and gas companies and the wider supply chain - as well as with industry bodies and the Treasury -will be vital for maximising economic recovery in the longer term, effecting the required change in behaviours in the short term could be challenging.

“With its cohesive and comprehensive approach to the ongoing challenges facing the UK Continental Shelf, the Wood Report is sure to give the industry a much needed psychological boost, particularly with the 2014 Budget just around the corner.”

John Ritchie, UK Oil and Gas tax specialist, based in PwC's Aberdeen office, said:

“There is much in the Wood Report to commend and it’s encouraging to note that a number of sensible suggestions from respondents to the interim review, on new targeted areas for fiscal planning to stimulate investment, have been included. This will be positively received by the industry.

“Fiscal policy was outside the scope of the Wood Report but it remains a key concern of the industry. As a high cost basin, a stable, fair and internationally competitive fiscal regime for the supply chain will be an important consideration.

“On a positive note, the Report recommends that the Regulator has a specific objective to advise HM Treasury. It’s hoped that this mechanism will, over the long term, encourage a fiscal strategy that is not only consistent with the objective of maximising recovery, but will help deliver the stability in North Sea tax policy that industry has been demanding in recent years.”


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