UK Chancellor of the Exchequer George Osborne joined delegates at Offshore Europe 2013 in Aberdeen, Scotland, where a minute of silence was observed to pay respects to the victims of last week’s North Sea helicopter crash.

Three men and one woman were killed when a Super Puma helicopter crashed offshore Shetland while returning workers ashore from an offshore rig. There were 14 survivors from the Aug. 23 crash.

Osborne paid tribute to the workers during his speech in the conference opening plenary session. “Our thoughts are with their families, friends and colleagues at this time,” he said. “The book of condolence here shows the depth of feeling for those who lost their lives and were injured.” He also paid tribute to the 167 people killed in the Piper Alpha disaster 25 years ago, which he described as “a tragedy that leaves an indelible mark in Aberdeen and on the industry.”

The biennual event understandably got underway on a somber note, with a traditional pre-show VIP dinner on Sept. 2 also observing a minute of silence, and a number of entertainments curtailed out of respect for the deceased.

Super Puma flights, suspended following the accident, have now resumed after experts ruled there was no evidence to suggest a technical problem was to blame.

The Next 50 Years

In the conference plenary session, being held under the theme of “The Next 50 Years,” the chancellor said: “The whole of the UK owes a massive debt to the thousands of men and women who work in what is an inherently dangerous environment.”

He continued by reaffirming the UK government’s commitment to playing its part in delivering investment to secure the industry’s future. “First, I recognize the vital role the oil and gas industry plays in the UK economy – and will continue to play for many many years to come. Second, I also recognize that the oil and gas remaining in the UK Continental Shelf (UKCS) will be increasingly difficult and more expensive to extract – but that this government commits to play our part in delivering the investment that’s needed.

“And third, I believe that the best way to support this industry and maximize the returns from this great national asset is by working together across the UK; through mobilizing all the UK’s resources; and by pooling our risks to provide stability across the whole UK.”

Osborne, who later in the day flew by helicopter to operator Talisman Sinopec’s Montrose platform, went on to point out that oil and gas still meets around 70% of the UK’s primary energy needs – with more than half of UK demand for oil and gas met by UK production.

Global Subsea Market

He stressed the importance of the UK’s subsea industry, which currently captures more than a third of the global subsea market: “A market that’s set to double over the next five years – growth at home and abroad, growth that I want to help you deliver,” he added.

The chancellor, admitting that oil and gas remaining in the UKCS will be increasingly difficult and more expensive to extract, said that opportunities are now often smaller, technically challenging or both. He flagged up new greenfield developments, such as Chevron’s planned Rosebank field West of Shetland, in 1,100 m (3,609 ft) of water.

But he also stressed the importance of revamping existing infrastructure, hence his visit to the Montrose field, which is one of the oldest in the North Sea.

“I’ve deliberately chosen to go there because I want to see how Talisman Sinopec and Marubeni Oil and Gas’s [US $2.5 billion] investment is extending the life of five fields by 14 years – which means that these fields will be producing the equivalent of an additional 100 MMbbl of oil until 2030. This project alone will be creating and securing 2,000 jobs throughout the UK supply chain.

“But there are also challenges. We need to develop a North Sea regime that keeps pace with the changing structure of the basin. The Montrose project is a case in point,” he said. “Its economic viability depends on a complex mix of factors: targeted tax breaks, and bundling a number of older fields with two undeveloped ones.”

The industry’s ingenuity would ensure its long-term future in the North Sea and West of Shetland, and that it would still be recovering oil in the 2050s, Osborne said.

The British government’s objective is simple, he continued. “We want to work with you to maximise the North Sea’s recoverable reserves.”

This attitude, he said, was why the government had put in place its first national oil and gas strategy, with the PILOT program identifying ways to remove barriers to development. It is also putting in place tax reliefs to support the industry as extraction becomes more difficult.

“In my budgets, I’ve doubled the value and extended the scope of the small field allowance. I’ve put in place a [$4.7 billion] allowance to support investment in and exploration of large and deep fields like those West of Shetland. And I’ve introduced a £500 million allowance for large shallow-water gas fields and a brownfield allowance to encourage incremental investment in older fields.”

Decommissioning Relief

“Perhaps most important of all, I’ve provided the industry with long-term stability, by providing certainty on tax reliefs – worth upwards of [$31 billion] over a 30-year period – on future decommissioning costs,” he continued. “Funded by the whole of the UK, that’s equivalent to [$4,671] pounds for every man woman and child in Scotland – being used to support investment in the North Sea.”

The UK government will essentially enter contracts with the industry, setting out what relief companies can expect to receive in future when decommissioning assets. If the actual amount turns out to be less, the government has committed to make up the shortfall.

“This means assets will be easier to transfer and the climate for investment improved. I can tell this conference today I’m unveiling the final decommissioning deed. A concrete example of the tax certainty this government is providing.

“Never before has any government entered into legally binding contracts with individual companies to guarantee the tax relief they can expect decades into the future. No other place in the world provides such a guarantee.”

Industry estimates have estimated that this decommissioning certainty will drive at least $26 billion of increased investment, extending the life of the North Sea basin with an additional 1.7 Bbbl extracted.

The chancellor concluded that the industry is already seeing results from the new tax regime. Industry operator association Oil & Gas UK is forecasting record levels of investment of $21 billion for 2013, as it bids to stem the production decline of recent years.

Contact the author, Mark Thomas, at