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Where does the UKCS go from here?

It’s 2035. Confidence in the UKCS oil and gas market is at an all time high, with efficient production from existing and new developments in the North Sea.

We see decommissioning taking place alongside new exploration and development, frequently on a campaign basis; and UK decommissioning capability is now a significant export to overseas markets.

Working collaboratively, the supply chain and operators have established transformative contracting models that give the UK a global competitive advantage. There has been a significant uptake in new graduates and apprentices as well as increased recruitment to the sector which, combined with increased training opportunities, means any skills shortage is minimal.

It sounds like a pipe dream when we think about the UKCS market of recent years, but there’s absolutely no reason this aspiration, the foundation of the Oil and Gas Authority’s Vision 2035, can’t become a reality.

Collaborate, simplify and stabilise

There has been little change in the last 20 years in the UK oil and gas market when it comes to contracting, pricing and project management.

However, to meet some of the intended outcomes of the 2035 Vision of extending life, halving well costs and anchoring skills and jobs in the UK, there’s a significant amount of work to be done to change historic attitudes and practices.

In the last two years, particularly with the advent of the Oil and Gas Technology Centre, the industry has warmed to finding new ways to work collaboratively, especially when it comes to technology and digitalisation among operators, supply chain companies and also funders or investors.

Collaborative forms of contracting are becoming more widespread, but the industry still needs to make a shift away from simple co-operation to full collaboration and also expand that collaboration across more of the industry.

Similarly, when contracting, the focus largely remains on operator-managed, delivery-based contracts charged on a reimbursable basis. Internationally, we’re seeing significant developments as well as in other industries where project control is relinquished to those delivering the services (outcome-based contracting including consortium and turnkey models); and by using alternative pricing and reward matrices, including gain share, value add bonuses, production related payment and dynamic pricing.

While initially appearing more complex, use of alternative models could actually simplify the contracting process by making sure the industry addresses the blockers and behaviours inherent in the current models used.

Taking action initially on these two areas will also bring stability to the workforce and offer reassurance to those currently in, or wanting to enter, the industry: re-energising the employment market and attracting a skilled workforce.

Getting started

The industry is starting to identify and address these areas, recent decommissioning projects for BP and Chevron have shown that, but more action needs to be taken, and quicker than has happened to date.

The 2035 Vision’s key message is to create a ‘global energy industry anchored in the UK, powering the nation and exporting to the world.’

So, let’s begin.

Uisdeen Vass

Uisdean Vass is a partner at Ledingham Chalmers. He is based in our Aberdeen office.

Posted, 09 January 2019 by Uisdean Vass
Categories: Commercial contracts | Corporate | Oil and gas