Stephen Timms MP

Offshore Contractors Association

I attended this month my first Offshore Europe. What impressed me there was its scale, the dynamism that marked it, and the high degree of enthusiasm for the opportunities available for investment on the UK continental shelf. Our aim is the full exploitation of UK hydrocarbons. Of course, 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 success of Buzzard, the largest UK offshore oil find in 20 years, underlines that. It is a timely reminder that there are in the UK great prizes still to be won.

I want to concentrate this evening on oil and gas, but let me first just make a rather different point. First thing tomorrow morning I shall be flying to Germany to speak at the Husum wind energy conference. The contribution we are looking to offshore wind to provide represents an investment of some £6 billion by 2010. I know the industry is alive to the opportunities here, but those opportunities, for this industry, are certainly among the gains that we want to make the most of, as this programme goes forward.

In three years' time, the UK will be a net importer of gas; in seven years' time, of oil. The best way of securing energy reliability will be through diversity of energy sources, suppliers and routes: Norway, Russia, the Middle East, North Africa and Latin America. We want to see UK industry taking the opportunities in all of them.

We are working as you know to secure agreement with Norway for the import of gas and we are making good progress. But the UK-Norway co-operation is wider than that. We want ultimately a One North Sea approach, both governments ensuring openness of their respective markets, and the two countries co-operating on median line field developments and delivering new business opportunities to the supply chain. The next PILOT meeting in December will be jointly with our Norwegian counterpart.

On the UK Continental Shelf there are two principal Government objectives:

• First, to ensure that oil and gas resources are fully and effectively exploited;
• And second, to maintain UK leadership as a centre of expertise for the sector.

All of us know that achieving those objectives will entail Government and industry working together. And we are starting to see great results through our partnership in PILOT, keeping the North Sea vibrant and a magnet for global investment.

We have always welcomed investment from around the world. We want:

• 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.

We are delighted that a number of US and Canadian companies have entered the UK Continental Shelf in the last two years and are already making a positive impact. I met with Alan Booth and Richard Vernon from EnCana this afternoon and we discussed the huge importance of Buzzard to the UK supply chain. I am confident that the competitiveness of UK companies and the recent excellent track record on delivery will lead to a very positive outcome.

There are 15 other North American companies undertaking strategic assessments. And it is equally important that the existing North Sea players continue to be active. The recent re-structuring of Shell shows an oil major changing to meet the challenges that lie ahead in the next phase of its investment 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 regulatory and fiscal regime matches up to today's demands.

We have been addressing the challenge of lower North Sea exploration levels. During the last 18 months, the 'fallow initiative' has been looking at blocks and discoveries that have seen no activity for 4 or more years. We had a review of progress at the Pilot meeting that I chaired earlier this week. We want fallow assets in the hands of companies committed to doing something with them, and to doing it now. We have so far identified over 400 fallow blocks and discoveries and seen significant renewed activity on 93 of them. Nearly 40 blocks have been relinquished, and have already been offered for re-licensing or will be early next year.

Industry told us that changes were needed to the licensing system as well, and we have made changes in response. The new "promote" licences offered in the 21st Round are giving 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.

The results of the 21st Round are amongst the most encouraging we've seen for years. We were able to offer 53 Promote Licences. It is a good example of the new thinking that we need in the UKCS, and we will continue to adapt licensing to changing needs.

This year's Budget announced consultation on encouraging exploration. The Inland Revenue led group is looking at the case for fiscal change that could stimulate exploration, with a view to being able to say something at this year's Pre-Budget Report. The DTI led group is looking at other key issues for the industry. Access to Infrastructure is one of them. The offshore infrastructure is one of our most valuable assets, providing a basis for continued exploitation, which 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.

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. The home market has provided a base for the UK Oil & Gas Industry - a capability that has been developed over the past 30 years and more. The oil companies, the contractors, the whole supply chain have developed capability that did not exist in the UK before.

And that capability is as applicable in West Africa, in South America, in the Caspian or anywhere else in the world as it is in the North Sea. The more that companies become involved in overseas markets the more they sharpen their competitiveness. New challenges lead to more innovation and increased productivity.

Trade Partners UK - the joint operation of the DTI and the Foreign Office for trade promotion - is 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. I was pleased to see at Offshore Europe just how many overseas visitors their stand was attracting.

My colleague Lewis MacDonald, the vice chair of PILOT and Minister in the Scottish Executive, launched at Offshore Europe Subsea UK, to champion the UK Subsea industry in oil & gas, in the military, in research, in construction and in nuclear. It will focus on Internationalisation, Technology Commercialisation and Diversification.

A further key activity within PILOT is that of the Progressing Partnership Working Group. Its brief spans the agreement to work with standard terms and conditions for contracts, through to payment of invoices within 30 days. These have culminated in an industry Code of Practice, to improve efficiency and reduce waste. I commend it and I hope you and your supply chain will sign up to it.

On safety, all of us will have been deeply saddened by the tragic fatal accident two weeks ago and I endorse what Neil has said. Safety is paramount and we must be resolute. I commend the work of the OCA Health, Safety and Environment Committee, with its key partners.

I know also that OCA companies take skills issues very seriously, supporting as Neil has said, the Offshore Technician Programme that Brian Wilson launched. That is beginning to resolve a problem of too few technicians joining the industry. We need together to be ensuring that people have the right skills and to encouraging them into the industry - they need to know that this is an industry with a great future.

In government we want you to continue to succeed, and we believe that you will. Through PILOT and in other ways I look forward to working together with you for the success of this superb industry.

Please join me in a toast - to the offshore industry.

Thank you