UK’s recent energy innovations contain lessons for Alberta
Canada’s oilpatch is not the beacon of co-operation and collaboration it needs to be.
That message was delivered to a Calgary audience at a recent forum that included the president of the U.K. Oil and Gas Authority and representatives from Canada’s energy sector.
When the U.K. energy sector was on its knees three years ago, the government there embarked on several initiatives to increase investment. This included a benchmarking study to help service companies and address certainty surrounding bidding processes.
The British government understood that a stronger energy sector would boost revenues to meet its budget commitments.
“It’s still a very relevant industry for the U.K.,” said Andy Russell, president and CEO of the U.K. Oil and Gas Authority.
Officials there realized — as former Alberta energy minister Ken Hughes quipped in a recent Globe and Mail column — “tax revenues won’t arrive on a magic ship full of rainbows and unicorns.”
Three studies were commissioned, with one leading to fiscal reforms that made the U.K. more competitive than Norway, Angola, the Gulf of Mexico and Indonesia.
The U.K., like Canada, has a card to play when it comes to attracting investment. Both hold proven reserves — whether in the North Sea or the oilsands — outside dodgy regions of the world.
That counts for something when companies assess risk while looking to invest.
The fact Canada has regulatory risk that can, and has, negatively affected project timelines — even those that have been sanctioned — is also a discussion that needs to happen on this side of the pond.
One reason for renewed interest in the North Sea is that the government is being transparent about the abandonment costs, said Russell.
It has supported efforts to decommission wells and worked with companies in the region to reduce both decommissioning and operating costs.
The difference between Canada and the U.K. seems to be that government is being seen as a partner, not an adversary.
The refrain in North America is that all government is bad and solutions need to be driven by the private sector.
Sometimes the private sector needs a bit of a kick, and if the markets won’t deliver it, governments can.
The British government studies led to the creation of the U.K. Oil and Gas Authority, a more competitive fiscal regime and recognition of the service sector’s importance to the industry.
Taxes were reduced and the regulatory structure was simplified. The government take is now lower, to the benefit of investors.
While the tax reduction piece may be motherhood, what’s important is that these efforts weren’t only focused on the traditional, exploration and production side of the business. They also included the companies helping to bring the oil and natural gas on production.
Russell said that approach has led to a decline in operating costs by as much as 30 per cent and increased production efficiency to 73 per cent. It also helped identify more barrels — as much as two billion, with expectations that number will double.
A big part of this is technologydriven. The application of technology will not only reduce costs and the environmental footprint, it will also help reduce the cycle times for plays in the region, which is of critical importance in the current world of light, tight oil.
One approach the U.K Oil and Gas Authority is using to help industry reduce costs is the hosting of hackathons.
This is the crowdsourcing of problem solving — similar to the NRG X-Prize — but something new and novel for the service sector of the oilpatch.
The closest anything gets to this concept in Alberta is the Avatar program that Beaver Drilling launched in the summer. It’s aimed at training a new generation of tech-savvy service operators capable of applying more technology and including artificial intelligence — to make the drilling process faster, safer and more cost effective.
There is a point where continually shaving costs simply doesn’t work. We’re there.
What’s clear in learning about the U.K. energy sector is that Alberta faces similar issues.
Both have good reserves, in stable areas of the world and, on a relative scale, each has political certainty.
Alberta — with labour, cost and productivity issues — has been in the same boat as the UK. In fact, it still is.
As much as the UK Oil and Gas regulatory authority has looked, frequently, for guidance from the Alberta Energy Regulator to develop a best-in-class regulatory system, it might be time for us to turn outward to better understand what’s being done to attract new investment.
As the energy sector reels from the cancellation of the Energy East pipeline project — and the message that sends to the rest of the world about Canada as a favourable jurisdiction to invest — there is no time to waste.
Hackathon, anyone?