Stephen Timms MP

Launch Offshore Europe 2003

There are two main objectives for UK Government and the UK Oil & Gas Sector as we look to the future:

• First, we must ensure that oil and gas resources within the UK Continental Shelf are fully and effectively exploited; 
  
  
• and second, we need to maintain the UK's pre-eminent position as a centre of expertise for the sector.

We all know that those objectives will entail Government and industry working together. We are starting to see great results through our partnership in PILOT - the Oil and Gas Task Force. In particular, a massive amount of work has been taking place to ensure that the North Sea remains vibrant and continues to be a key global magnet for investment.

It is true, of course, that after 40 years the region is maturing. But there is still a great deal of oil and gas to extract, and plenty of opportunities for those with the drive and determination to realise them. The recent success of the Buzzard discovery, the largest UK offshore oil find in 20 years, underlines the point. We have even seen a recent discovery onshore by Pentex - a large find by onshore standards. They came as a surprise to many. But they are a timely reminder that there are great prizes still to be won, in the UK as elsewhere.

I made a call yesterday on BP, on the day they announced their new Farragon Discovery in the Central North Sea lying about 230 kilometres North-East of Aberdeen. It is further dramatic confirmation that there are still significant opportunities for investment in the North Sea. I am heartened to see the co-operation between BP, Eni and Encana that led to that discovery, underlining the need for innovation and collaboration to achieve success in the new environment.

Our aim must be the full exploitation of UK hydrocarbon resources. We are keen to attract new players and so have always welcomed global investment in the UKCS, but in the last 2 years we have given priority to targeting those, particularly in North America, who are likely investors. We are particularly keen to attract:

• Independent oil companies to drill wildcat exploration wells and exploit the full value chain from exploration to development;
  
  
• Niche 'developers', with the skills to develop previously undeveloped discoveries through technically innovative and best cost solutions; and
  
  
• Brown field investment like Apache's recent take over of Forties.

A number of US-based companies have entered the UK Continental Shelf in the last two years: Apache, ATP, Challenger Minerals, Palace Exploration, Newfield Exploration, EOG. They are already making a positive impact. And we have seen successful investments by Canadian companies too - Talisman, EnCana, CNR.

I am delighted to announce today the approval of the Broom field that will be developed by DNO with their partners Challenger and Palace. This field is an example of how new entrants, Challenger and Palace, can work with an established operator of a nearby mature field, Heather, to appraise the long fallow discovery and bring it to development. The benefits are not just to Broom, but also to help extend the life of the Heather platform and infrastructure. It is a great model and I wish them every success.

We want to do everything we can to make things easier for new entrants into the UKCS and for those companies who are already here. That is why government and industry, working through PILOT, introduced the new Master Deed, a streamlined system for licence and assets transfers. I am pleased to announce today that my officials have now given consent to the first transaction under this new system, BP's sale of its Bacton area assets to Parenco. I hope that others will move to take advantage of the benefits of the new system.

In the longer-term, there are some 15 other North American companies undertaking strategic assessments of the UKCS. We welcome this interest, and are keen to see it materialise. Of course, different North Sea projects call for different types of companies. So I must emphasise we also want the major North Sea players to continue to play an active role. And on that note, I'm glad to see that applications made in the recent 21st Offshore Licensing Round demonstrated their continuing interest.

I was discussing yesterday with my officials at Atholl House in Aberdeen how we are addressing the issue of fallow assets. We all know that North Sea exploration levels are lower than previous years. But we've been doing something about it. During the last 18 months, the 'fallow initiative' has sought to stimulate more seismic activity and drilling on blocks and discoveries that have seen no activity for 4 or more years.

We can't afford to have areas sitting idle like this and for so long. We are already achieving success. Since this work began, we have identified over 400 fallow blocks and discoveries and seen significant renewed activity on 93 of these areas. Nearly 40 blocks have been relinquished, and have already been, or will be, offered for re-licensing. The next release is due later this month. But publishing lists is not enough. I want to see these areas taken up and used.

I want now to turn to licensing. Industry told us that changes were needed to the licensing system, and we responded. The new "promote" licences were offered as part of the 21st Round - aiming to give companies, with new ideas and an innovative approach, exclusive interest for 2 years in a full production licence at 10% of the normal licence cost.

We want the 'Promoter' to use these 2 years to market opportunities to the industry, and raise the necessary funds to move forward. They will have a legal interest in the commercial value created by their work and in order to keep the licence, will need to commit to drilling activity or a similar substantive work programme within 2 years.

I believe the Promote Licence provides the foundation for the radical overhaul needed in UKCS operations. And industry thinks so too. The results of the 21st Round are amongst the most encouraging we've seen for years, and we were able to offer 53 Promote Licences - proof that the UK Continental Shelf is still attractive to global investors. We intend to continue to adapt the licensing system to mirror the changing circumstances on the UKCS.

I spent the two years up to 2001 as the Treasury Minister responsible for taxation of the oil and gas sector. This industry makes a vital contribution to the UK economy - not least through an average of some £5 billion per year in taxation sustained since the 1960s. It is in our interests to maximise the benefits of the UKCS for the good of our economy, so we need constantly to ask how our fiscal regime matches up to today's situation.

So royalties were abolished in January, removing a significant barrier to investment in older fields - important in themselves and as providers of essential infrastructure for new developments. And this year's Budget announced the intention to abolish, from next January, Petroleum Revenue Tax on all new third party tariff business relating to use of pipelines and other infrastructure.

We still need more exploration. A key element to the continuing success of the North Sea is to increase exploration levels. That is why the last Budget also announced a Treasury-led consultation on barriers to exploration and how to remove them. This has moved quickly. Workgroups have been set up, including a joint industry-government workgroup, led by the Inland Revenue, on the case for fiscal change.

Access to Infrastructure is also important and a PILOT workgroup is looking at the concerns potential new investors have about commercial difficulties that can hinder investment and activity. The offshore infrastructure is one of our most valuable assets, providing a basis for continued exploitation that might otherwise be uneconomic. That value has long been recognised by the owners of the infrastructure and it is important that, as the North Sea matures, we have a system that allows third parties fair access to pipelines for satellite and other developments.

The availability of data is also vital and The Data Workgroup is considering ways to build on current joint DTI/industry initiatives to ensure that companies have access to the best possible to data to enable them to make informed judgements and commercial decisions on exploration and appraisal.

Today I am pleased to announce the launch of two significant initiatives to improve access to the vast collection of scientific data gathered over three decades of oil and gas activity in the UK:

• Firstly, the new DEAL Data Registry will publish, via the Web, a comprehensive catalogue of released well and seismic survey data for the UK Continental Shelf, and point viewers to where this data may be obtained.
  
  
• Secondly, the DTI, together with the British Geological Survey, has established the National Hydrocarbon Data Archive to preserve the most valuable geo-science data collected from the UKCS and make it available for public use.

These initiatives are another outcome of close collaboration between government and industry through the PILOT forum. UK oil companies have helped greatly by agreeing to allow the DTI to publish exploration data after four years, a full year earlier than before.

I would now like to touch briefly on commercial behaviour and the industry's Code of Practice.

The Operator's Code of Practice is, in my view, a good thing. But, the workgroup on commercial behaviour is responding to suggestions from industry that not all licensees operate within the spirit of the Code of Practice - causing time delays in completing deals and discouraging investment. We need to get this right as the UKCS matures, as those keen to enter now will not get a second chance once the infrastructure window closes.

I could say much more:

• About our trailblazing sector skills council COGENT, whose expansion into other energy sectors reflects the high standard of their work;
  
  
• About our work to increase trade with Norway, with very successful Share Fairs, part of our broader co-operation efforts on energy supplies and maximising production in the whole North Sea basin, working towards a framework treaty;
  
  
• And how - following our encouragement - an increasing number of companies in this sector are working on renewable energy. I welcome that because your expertise is so vital to our challenges there. But that would be another story!
  

As Chairman of PILOT, I am looking forward to receiving the Work Groups' reports later this month.

Alongside maximising North Sea activity and economic recovery of oil and gas, we must maintain the UK as a centre of excellence for Oil & Gas - and for the energy business more broadly.

This doesn't rely on the presence or absence of indigenous reserves. It relies on technology and our ability to be competitive. The Finnish market for mobile phones is no larger than that for Scotland yet Nokia are a world leader in mobile phone technology. The lesson there is that long term commercial success and technological leadership are not dependant on the size of the home market.

The home market here provided a base for the UK Oil & Gas Industry - a capability developed over the past 30 years and more. The oil companies, the contractors, the whole supply chain developed capability that didn't exist before in the UK.

I have one more particularly pleasurable announcement to make. Yesterday I visited Halliburton - taking a look at their impressive visualisation software - and they told me they will today announce plans for a major investment in new UK headquarters, to consolidate 16 existing facilities into one purpose-built complex. The 40 acre development, here in Aberdeen, will house around 850 staff in modern offices and world-class operational facilities. This is great news for the UK, a welcome boost for Aberdeen, and an investment of tens of millions of pounds underscoring Halliburton's commitment to and confidence in the future of the UK Continental Shelf and UK's energy industry.

It's commitments like that which keep us at the cutting edge. And that capability - developed over all those years - is as applicable in West Africa, in South America or in the Caspian, or offshore Sakhalin Island or the Barents Sea, as it is in the North Sea. Indeed the more that companies become involved in overseas markets the more they enhance every aspect of their competitiveness and of their business performance.

New horizons and new challenges - working with new companies - lead on to more innovation and so to increased productivity.

Trade Partners UK - the joint operation of the DTI and the Foreign Office for trade promotion and development - is vigorously assisting the UK supplies industry in pursuing overseas opportunities, notably in the key markets of Azerbaijan, Kazakhstan, Iran, Brazil, China, Nigeria - and of course Houston - for the wide range of international opportunities it addresses.

In PILOT, we are also active with industry to promote the competitiveness of the sector. Let me mentions some of the initiatives under way:

Technology will be at the centre of the UK move into new export markets and new industry sectors. We need to develop new technology to realise the maximum potential of our own reserves. So I am looking forward to launching the "UK Oil and Gas Research Capability Database" tomorrow morning here in the exhibition centre at the "Realising the Future through R&D and New Technologies" event in the Upper Foyer. The database and the launch event itself will showcase examples of the DTI working with industry and assisted by the ITF (Industry Technology Facilitator).

The database will represent a pathway to hundreds of UK universities and research establishments with relevant oil and gas expertise and to some of the innovative technologies which are being developed with the aid of combined industry and government funding.

We are also active in supporting the networking of groups of companies active in the industry. One sector I particularly want to draw your attention to is Subsea.

On Friday, my colleague Lewis MacDonald, vice chair of PILOT and Scottish Minister for Energy, will launch Subsea UK - an all new industry body which will champion the UK Subsea industry in oil & gas, in the military sector, in research, in construction and in the nuclear sector. Providing a common identity for the industry, Subsea UK will focus on Internationalisation, Technology Commercialisation and Diversification.

It will be a shining example - working together to create an identity for a sector that developed for the Oil & Gas industry in the UK and is moving now on to diversify into other industries and expand into global markets.

We are also working to promote best practices within the supply chain. LOGIC is proving a significant asset in the sector. So is PILOT's Supply Chain Code of Practice. One of my first duties as Minister was to announce the results of the first annual Supply Chain Code of Practice compliance survey at the Share Fair in June this year. That survey shows that while companies are working hard on their performance, more remains to be done.
One area improvement is needed is the speedier payment of invoices, and I would ask that you assist in ensuring that you implement both the principles and process changes necessary within your organisations to ensure that this obligation is met.

I have had a lot of ground to cover this morning, but I hope you will have picked up my sense of just how many positive and frankly exciting things are happening on the UK Continental Shelf. I doubt whether any other development province in the world has demonstrated such a flexible and innovative approach.

I believe that those already in the industry will be able to confirm that the Government is doing its best to work with them. We want to work with you for a long, active and rewarding province for many years to come.

I'm sure that others will reinforce that message here at this great event. We have a great deal to offer, and our aim is to provide a framework for investment that enables you to move forward with confidence.

I hope we can work together. Have a great week - and thank you for the opportunity to speak to you today.