UPDATE 2-Britain creates new oil and gas regulator to tackle falling output

Mon Feb 24, 2014 11:46am EST

* UK could lose out on 200 bln pounds without new rules

* Industry to bear brunt of regulator cost

* Govt to appoint head of regulator this summer

By Karolin Schaps

LONDON, Feb 24 (Reuters) - Britain said it would create a new oil and gas regulator which will help UK explorers speed up their search for hard-to-access fossil fuel resources in a bid to counter plunging North Sea production rates.

A government-commissioned report published on Monday said Britain could lose out on a potential 200 billion pounds ($335 billion) worth of oil and gas output if measures proposed in the report are not followed.

The country's oil and gas output has fallen around two thirds since its peak at the turn of the century, but up to 24 billion barrels of oil equivalent (boe) are expected to still come out of the ground.

Oil and gas companies active in the UK's Continental Shelf (UKCS) are expected to meet most of the costs of a new oil and gas regulator that will speed up licensing processes, help coordinate exploration data and enforce rules to maximise well output.

Running a new regulator is estimated to cost 20-30 million pounds a year, a small amount compared to revenues oil and gas explorers make from selling fossil fuel.

The government's decision to create a dedicated regulator follows a recommendation in the oil and gas sector's first review since the mid-1990s, also known as the Wood Review.

The North Sea is thought to contain billions of barrels of hard-to-reach oil but with many platforms and pipelines coming to the end of their working lives, time is fast running out to get at them. The review's task was outlining how to make that easier.

Big players in the oil and gas industry, such as BP, Statoil or Shell, welcomed the creation of a new regulator.

Industry and government are still discussing the exact split up of the costs to run the body, with a decision expected by the summer, a government spokeswoman said.

"These are matters for the whole industry and we will be working with other operators, the government and the regulator to look closely at the details and practical implementation of today's report," said a spokesman for Shell.

Industry experts say the cost to companies is dwarfed by the benefits a smooth-running regulator would offer.

"I believe industry will have to pay, but in return should be granted appropriate service level agreements," said Sir Ian Wood, author of the review and former chairman of oil services company Wood Group, without providing figures.

SENSE OF URGENCY

Government revenues from North Sea production fell more than 40 percent to 4.7 billion pounds in 2012-13, underlining the sector's importance to Britain's economic recovery.

The government's aim to appoint a chief executive to run the regulator this summer shows that tackling the decline in oil and gas output is an urgent matter, said Judith Aldersey-Williams, partner at law firm CMS.

"That suggests a real sense of urgency and I think that's quite encouraging," she said.

The new regulator will block any major investments that do not sufficiently focus on extracting maximum potential from North Sea fields, a move which could result in some operators losing their licences, Wood said.

Wood, whose report estimates that about 24 billion barrels of oil equivalent could still be buried beneath the UK part of the North Sea, also recommended the regulator should enforce rules for companies to share exploration data more quickly.

"I fully back Sir Ian Wood's recommendations and we will start implementing them immediately," said Britain's Energy and Climate Change Secretary Ed Davey in a statement.

A focus on more drilling for oil and gas in more remote areas could benefit companies which specialise in exploration such as Seadrill, Noble or Rowan.

"We strongly welcome the proposal for a new arm's length regulator with additional powers and resources...The report is a game changer," said Malcolm Webb, chief executive of Oil & Gas UK, Britain's fossil fuel industry lobby group.

Britain's plan to squeeze more oil and gas out of its mature market could be a blueprint for other countries whose exploration programmes are yet to reach this stage.

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