By Mark Thomas, Senior Editor, E&P Sometimes we all have to stand back and admit that – however painful it might be for some – governments do occasionally get it right. Despite the occasionally fractious relationship between the upstream industry in Britain and the government when it comes to fiscal stability, policies, and ‘windfall’ taxes, there is a growing recognition that the country’s political leadership has lately understood the need to take a pro-active role in helping the UK North Sea sector secure its future. The decision by the Department of Energy and Climate Change (DECC) to give consent to Norway’s Statoil to undertake one of the largest developments to ever take place in the UK North Sea was in all ways a ‘no brainer.’ The go-ahead for the Mariner field will see more than US $7 billion invested in the heavy oil project – the largest new development in the UK in more than a decade. The benefits are many, with the field eventually producing 55,000 b/d of oil; enabling 700 new jobs in Aberdeen, Scotland, directly created by its 40-year operational phase; and a solid stream of tax revenue to be received over that period. The development has only been possible because of a realistic partnership between the UK government and Statoil, and the application of targeted tax breaks. DECC Secretary, Edward Davey, said that “unlocking heavy oil production marks a new chapter in development, opening the potential for 5% of our oil reserves.” The government is working hard with the industry to ensure that unexploited fields get developed, and that the fiscal regime was one that now encourages investment, together with the use of new, advanced technology, he added. The policy is working – North Sea investment is an historic high, Davey pointed out. Projects like Mariner (discovered 31 years ago) are a prime example of how stranded assets can be unlocked through a commonsense approach, combining technology advances with fiscal incentives to encourage fresh activity. In today’s ultra-competitive offshore market, regions like the North Sea must be as innovative as possible to keep activity levels high, using the undisputed advantages such as established infrastructure, political and fiscal stability, and access to industry expertise. For Mariner, despite technology advances in areas such as horizontal drilling and improved well completion techniques, it was stuck in the slow lane until the DECC decided to step in and declare it fallow in 2005. This sparked a realignment of licence ownership interests, the acquisition of new seismic in 2008, and lo and behold, the submission of a development plan by September 2012. Statoil, which itself only stepped into the project in 2007 when it took over operatorship and a major stake from Chevron, should also be lauded for its speed of approach. Production is expected in 2017, just 10 years after it got involved. CEO Helge Lund has gone on record to “appreciate the cooperation from the UK government and the approval of the development plan for this landmark project.” Statoil and the UK government have had their public disagreements in the past over tax rates, especially an ill-advised supplementary ‘windfall’ tax imposed in 2011 by the government that prompted the Norwegian company to simply stall its projects under development, including Mariner, until the situation was clarified. The UK North Sea is now thankfully very much back in the company’s plans, and Statoil’s release went on to acknowledge that the project was “positively impacted by the UK government’s expansion of the Ring Fence Expenditure Supplement and will provide significant tax income for the UK.” The expenditure supplement was introduced in 2006, so that oil companies could offset exploration, appraisal, and development costs against corporation tax. The supplement percentage has since been raised to 10% from its original 6% level. At a time when competition for investment dollars globally has never been tougher, it is a proactive approach like this that will make the difference between a mature region enjoying a healthy and productive long life, or suffering a long and rather painful death. Contact the author, Mark Thomas, at email@example.com.
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