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As a long-term fan and supporter of London First, which has achieved a
great deal in taking forward the key concerns in areas like the one I
represent in the East End of London, I warmly welcome this reception.
Last week I was in Shetland to mark the 25th anniversary of the
Sullom Voe oil terminal. There are very good grounds for believing that
Sullom Voe has at least another 25 years of operation ahead. But over
the next three or four years we are likely to become a net importer of
both oil and gas, and by 2020 might be dependent on imported fuel for
75% of our energy needs. So given that changing environment, we need to
do two things - to maintain our own production at a profitable level for
as long as possible, and to secure alternative supplies to those which
we have been dependent on in the North Sea until now.
There is a major role for inward investment in maintaining our own
production, and one that needs specific attention from Government. The
established global companies are themselves inward investors and will
continue to play an important role. BP, Shell and the other majors
continue to make substantial investments in exploration and development,
often on the most risky and costly projects. Maximising recovery from
their existing fields will underpin the success of the rest of the
industry. They have a crucial role to play to ensure that the conditions
are right for the success for newer players who are seeking investment
opportunities.
But companies that are to produce the remaining resources are likely
to be smaller and less capitalised than the ones that have dominated to
date. We are active in attracting new entrants to the UK Continental
Shelf, particularly:
- Exploration companies interested in the substantial undiscovered
potential
- Niche developers with the skills to develop previously undeveloped
discoveries through technically innovative and best-cost solutions
- Brownfield investors who are able to use producing fields as a
base from which to explore and develop.
So we introduced a new form of "Promote" licence, cutting
the rental fee by 90% for the first two years compared to the rate for a
traditional exploration and development licence, giving smaller
newcomers the opportunity to find oil and gas and work up prospects
within the initial two years of the licence.
It has been well received by industry. We are seeing new ideas from
those who have been awarded these licences and I look forward to seeing
new investment flowing as well. This process is already under way. The
response to this year's 21st Offshore Licensing Round was the best for
years, with 89 licences awarded. 53 of these were for the new
"Promote" licences. So many prospects that may otherwise not
have received attention are now being actively examined with a view to
future exploration and development. And the mix of companies is
striking. Well over half are small independent or consultancy companies;
9 have no previous licence experience and 7 are entirely new to the UK.
This shows that, providing the regulatory framework is right, there is
no barrier to any organisation with the right skills and knowledge
becoming involved on the UK Continental Shelf.
We are also working, through PILOT, the UK Oil and Gas industry task
force which I chair, and through a consultation with the Treasury and
industry aimed specifically at identifying and removing barriers to
further exploration, to make sure the regulatory and commercial
environment offshore is as helpful as possible to those seeking to
invest or continuing to invest there. This year we are giving priority
to:
- Encouraging the relinquishment of fallow acreage -blocks and
discoveries which have seen no activity for four years or more - to
companies who want to use it
- Looking for ways to enhance production from "brown
fields"
- Improving access to offshore data
- Tackling skills shortages in the industry
- Developing voluntary measures to ensure fair third party access to
infrastructure
- Streamlining commercial procedures
- Amending the fiscal regime - abolishing royalties and, from next
January, Petroleum Revenue Tax on all new third party tariff
business relating to use of infrastructure.
We are seeing encouraging progress:
- A global exploration survey last May rated the UK as the most
positive investment climate for new exploration.
- In the last couple of years, new companies such as Apache,
Challenger, Encana and CNR from North America, Perenco and RWE from
Europe, as well as Tuscan and Paladin from the UK have joined us and
are making a real impact.
- Recently the International Herald Tribune came to interview me
about why there was such a buzz about the North Sea.
- And last week I was pleased to give formal consent to Encana and
its co-venturers to begin the development of the giant Buzzard oil
field, in the Moray Firth, which could yield over 400 million
barrels of oil and overall investment of £1.35 billion - the
largest in the UK in the last decade, and equivalent to around a
third of the industry's total annual expenditure
Of course the buzz is not just offshore. According to the UK Offshore
Operators Association, about one - quarter of oil and gas - related jobs
are in London and the Southeast. I am especially glad to see this
reception recognise that London itself is a national asset. The largest
knowledge base in Europe. Overall productivity over 40% higher than the
UK average, and 23% above in manufacturing. And as noted by Ronald
Spinney, for the fourteenth consecutive year voted the best city for
business.
But we must not allow our position as market leader in Europe to make
us complacent. This is increasingly important with business and
investment more mobile than ever, and the competition for investment
growing.
Securing inward investment is about partnership, at home and
overseas. National, regional and local organisations, as well as
individuals from the private and public sectors, all working together to
provide a quality service for inward investors.
The oil and gas industry provides a good model of working in
partnership. The co-operation model is well established. Industry and
Government work together through PILOT to ensure continued offshore
investment and activity. Industry and academic centres of excellence
work together to ensure continued advances in innovative technology and
continued recruitment of young people to the industry.
On behalf of Government, I want to express appreciation and a very
high regards for the contribution of this industry. Let's continue to
work together to make the most of the - still very attractive -
opportunities ahead.
Thank you all very much.
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