Stephen Timms MP

Future of Oil and Gas Industry

Of course, the basin is maturing, but there are still a constellation of opportunities. Buzzard has been the largest UK offshore oil find in 20 years and there is just as much in the way of recoverable reserves waiting to be exploited as we have already extracted over the past 40 years.

So we share two main objectives. First, we must ensure that oil and gas resources within the UKCS are fully and effectively exploited and as Chairman of PILOT I am committed to promoting the North Sea at every opportunity. And, second, we need to maintain the UK's pre-eminent position as a centre of expertise for the oil & gas sector worldwide.

We can deliver those objectives by working together, and let me just take this chance to outline the progress which our working together in PILOT has achieved.

We have been working to attract new players. In particular, we've looked to independent oil companies and specialised developers, with the skills to breath life into previously undeveloped discoveries through the use of new technology, such as Apache's take-over of Forties, and Perenco's purchase of BP's Bacton assets.

We have introduced the new Master Deed that brought in a streamlined system for licence and assets transfers. My officials recently approved the first transaction under this new system, BP's sale of its Bacton assets to Parenco, and I hope that others will now take advantage of this new system.

It is also vital that the major North Sea players continue to play an active role. I'm glad applications in the 21st Offshore Licensing Round demonstrated their continuing interest.

The response to the 21st Offshore Round was without doubt the best for years, and we awarded a total of 89 licences, 53 of which were the newly devised "promote" licences. They are a 10th of the cost of a traditional licence - to encourage a new breed of small prospectors to look at North Sea opportunities, and work up prospects within the initial 2 years of the licence. I look forward to seeing new ideas and investment as a result. I attended the first Prospect fair at Islington earlier today bringing together new ideas and hardened expertise. We will continue to adapt and modify the licensing system to reflect the changing climate in the UKCS and I will certainly want to ensure that the DTI offers a "can do" culture to the industry.

We are addressing the issue of fallow assets. Exploration levels are low, so for the last 18 months, the 'fallow initiative' has been aiming to stimulate more seismic activity and drilling on blocks and discoveries that have seen no activity for four or more years. We want to see assets in the hands of companies committed to doing something with them, and to doing it now. We want to wield sustained and effective influence on those who are not making best use of their licences. And we are seeing some success.

We are determined to increase exploration levels. A Treasury-led consultation is looking at identifying and removing barriers to exploration, and my Department has been leading a number of workgroups looking at non-tax issues identified as key to assisting in removing the barriers.

We are currently pressing infrastructure owners to come forward with proposals for voluntarily demonstrating that their tariffs are fair and reasonable. This is an important issue for PILOT that has been looking at the effectiveness of the voluntary and legal frameworks for third party access to infrastructure and whether access is a barrier to the development of new fields. The industry is currently considering DTI recommendations on the revision of the voluntary code of practice.

The offshore infrastructure on the UKCS is one of its most valuable assets providing a basis for continued exploitation of our offshore reserves, which might otherwise be uneconomic. 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.

We shouldn't forget that Brown Fields (those already in production) also have the potential to yield prizes. New approaches and new technology will often allow recovery from a field far beyond the levels originally predicted. Aberdeen's Tuscan Energy has achieved the landmark of first oil production from its Ardmore field (formerly Argyll), bringing the UK's first field to produce oil back on-stream over a decade after it was abandoned.

That has been a tremendous boost for the North Sea. It indicates just what is possible through new thinking and technology. It's good news for the oil and gas industry, but also for the economy as a whole.

It has been estimated that we could gain an incremental 2 billion barrels of oil from Brown Fields if we get it right. We need to realise this potential and PILOT will be addressing this over the next year, building on the work already delivered by its Brown Fields' team.

The 2003 Energy White Paper heralded the forthcoming UK treaty with Norway to facilitate continued supplies of gas. The commitment in the White Paper followed last year's PILOT/KON-KRAFT report on North Sea Co-operation which recommended a new treaty be put in place clarifying the regulatory framework for a range of possible commercial projects across the boundary - pipeline projects transporting gas across the delimitation line, field developments which straddle the delimitation line and the use of 'host' facilities for developing reservoirs from one side of the line using infrastructure on the other.

Last month marked a key milestone when the two Governments signed up to principles to underpin future cross-boundary co-operation, to be incorporated in a new Framework Treaty. The Agreement of principles to go in that treaty constitutes the most comprehensive energy co-operation yet between us and will facilitate the delivery of 20bcm/ year of Norwegian gas to the UK - some 20% of UK gas demand from 2006. It is a key to unlocking the remaining reserves lying within the median corridor, and will set us on the road to realising the $2 billion co-operation prize identified in last year's report.

I shall launch an update to the UK-Norway Report during next month's PILOT/KONKRAFT joint meeting in London.

Alongside maximising North Sea activity, we need to maintain the UK as a centre of excellence for Oil & Gas - and for the energy business more broadly, and we are working on that in PILOT. I spoke this morning to the annual London Sakhalin Oil and Gas Conference, and in Sakhalin it is Shell that is leading the major consortium.

I recently launched the "UK Oil and Gas Research Capability Database" to showcase some impressive examples, the DTI working with industry and assisted by the Industry Technology Facilitator. We need to develop increasingly sophisticated technology to realise the potential of our reserves.

The Energy Chapter of the draft European Treaty is currently - and rightly - receiving a great deal of media interest. I fully understand the concerns. Let me take this opportunity to provide reassurance that Government has raised its concerns, and those of industry, during the Intergovernmental Conference, and will continue to do so. We are working at all levels to secure support for our position with the Presidency and across Member States. I am grateful for the support of Parliamentary colleagues, and for the engagement of industry in this key issue, and we need to continue working together on it to secure objectives which all of us here share

So there is a great deal going on. I am very appreciative of all the effort that the industry has invested in working with Government on these issues. We remain firmly committed, and I am looking forward to our continuing to work together to make the most of the superb opportunities that this industry has ahead.

Thank you.