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Tier Zero 2020 Positive performance news as oil and gas industry works to deal with serious challenges

Positive performance news as oil and gas industry works to deal with serious challenges

The Oil and Gas Authority (OGA) held its annual Tier Zero meeting for senior oil and gas industry leaders on Thursday 30 April. The group welcomed positive developments on production efficiency and the inclusion of net zero as a key theme in benchmarking.

Production efficiency on the UK Continental Shelf (UKCS) has improved for the seventh consecutive year, reaching 80% in 2019, according to the latest analysis by the OGA.

This 5 percentage point increase on the previous year was driven by a 34% reduction in production losses compared with 2018, which represented 50 million barrels of oil equivalent (boe). Industry has now successfully met the 80% production efficiency target set by the industry and the OGA in its Corporate Plan.

The news came as the OGA, and the group of 21 senior industry leaders representing leading UKCS oil and gas operators, gathered to review performance and share their views on the industry’s performance over the past 12 months. The group also reviewed industry focus areas going forward.

The OGA and representatives were acutely aware that this year’s meeting took place against the backdrop of two extremely serious issues – the global pandemic and the rapid fall in commodity prices. In light of that, the OGA provided an update on its ongoing support for the industry as it deals with the impact of those issues and also took the opportunity to reaffirm its commitment to continuing its net zero integration work.

Coronavirus

Performance

For the first time at a Tier Zero meeting, operators were provided with benchmarked emissions data to compare how each of them are performing in a range of areas including flared gas volumes and CO2 emissions. The data and benchmarking are from 2019 data.

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Some of the key findings from the Tier Zero include:

At 80%, production efficiency has risen by 15 percentage points compared to 2014 with production losses declining by 34% between 2018 and 2019

More efficient production often corresponds to lower emissions intensity on production facilities and since 2014, the 15% improvement in production efficiency has contributed to a 13% reduction in carbon emissions intensity

Production levels remained stable in 2019 at around 1.69 million boe per day. This is an increase of 270,000 boe per day or 99 million barrels per year higher than in 2014

The number of exploration wells spudded has increased from 17 in 2018 to 28 in 2019 with 243 million boe discovered in 2019

0.3bn barrels were added to reserves during 2019, a reserves replacement ratio of 44%

£356 million was spent on intervention activity in 2019, a 20% increase in spend from 2018

Unit operating costs (UOC) remained stable at an average of £11.90 per barrel in 2019, compared to £11.60 per barrel in 2018.

In this critical time, this level of performance is having an important contribution to resilience.

net zero

The pressing need for the industry to keep engaging positively with the energy transition in order to support the Government’s drive to reach net zero emissions by 2050 was acknowledged. There was positive feelings towards the opportunities the challenge offers and confidence that the industry has the required skills, experience and potential for capital investment.

In 2018, the most recent year for which figures are available, carbon emissions intensity dropped to 21.4 kg CO2 per boe produced, down from 23.0 the previous year. This represented a 13% total reduction since 2014; achieved at the same time as production efficiency rose by 15 percentage points. The OGA outlined to industry that updates to guidance on flaring and venting are ongoing.

On Carbon Capture and Storage (CCS), the meeting noted that:

  • Existing oil and gas infrastructure is strategically positioned to support the energy transition
  • There are significant synergies to reduce project cost and timelines
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Seven of the managing directors talked through a collection of best practices on fugitives, flaring, venting, day-to-day operations, reducing CO2 emissions, broader area solutions such as electrification, CCS, Hydrogen and nature-based solutions.

Supply Chain

Recognising that around 80% of the jobs in the industry are within the supply chain, the meeting discussed the immediate and longer-term measures that are needed to respond to the current combined challenges.

In the immediate term, there is an acute need for all those who are paying invoices to do so on time without unreasonable delays. Signatories of the Prompt Payment Code undertake to:

"pay suppliers within a maximum of 60 days” and to “work towards adopting 30 days as the norm.”

At the same time, whilst the change in commodity price needs to be addressed, operators were encouraged to engage constructively and work in partnership with service companies – working together to realise value in a sustainable way and a couple of MDs shared examples of great practices. The impact of the last downturn has been followed in recent years with only modest growth of 2% and margins around 6% which means there is very limited capacity in the supply chain to shoulder significant cost reductions.

Conclusions

Throughout the meeting, operators shared examples of operational best practices, alongside thoughts and experiences on how new technologies can be best deployed, and examples of net zero initiatives and successful collaboration with the supply chain.

The OGA was grateful to the operators for their open and collaborative outlook and reiterated a commitment to providing flexible support to the industry where possible through this difficult period.