Britain should set up new N.Sea regulator -government review

By Sarah Young

LONDON, Nov 11 (Reuters) - Britain should set up a new regulator that would encourage oil and gas companies to collaborate to help counter plunging North Sea production rates, a government-commissioned review said in its initial findings on Monday.

The government launched the review of the North Sea, the first in more than 20 years, after output plunged by a third from 2010 to 2012. While production has been in decline since 1999, the big drops in recent years have acted as a drag on economic growth.

Led by Ian Wood, former chairman of FTSE 100 oil services company Wood Group (Frankfurt: JWG1.F - news) , the review outlined a plan to pump an extra 3 billion to 4 billion barrels of oil equivalent (boe) than would otherwise be extracted over the next 20 years.

The plan involves establishing an "arm's-length" regulatory body that would drive collaboration between different companies, maximising the barrels pumped.

Industry experts have long said that Britain's North Sea, with its large number of operators, would be more efficient if there were more coordination between smaller companies and if larger companies were encouraged to allow other parties access to infrastructure they own.

The extra barrels, equivalent to at least 17 percent more production than the current estimate of 18 billion barrels still to come from the North Sea, would bring over 200 billion pounds ($320 billion) of additional value to Britain's economy, the review said.

"It is essential for the UK's future growth and prosperity that we maximise recovery of our offshore oil and gas resource. It is therefore crucial that industry and government act now to invest in this shared vision if they are to achieve these goals," Wood said in a statement.

The government's Department of Energy and Climate Change (DECC) would set up the body with "additional powers" to force collaboration and coordination between companies.

The companies, which the review recommended would fund the new regulator, would commit to collaborate in certain areas such as sharing pipelines.

Companies and government will now have an opportunity to comment on the initial findings before Wood publishes his final report early next year.

With the North Sea in its fifth decade of pumping oil and gas, new discoveries tend to be small and costly to exploit, while old platforms and pipelines need more maintenance, cutting output and profits.

The biggest oil companies, such as BP (LSE: BP.L - news) and Shell (LSE: RDSB.L - news) , are still active in the region but are concentrating on new projects off the West of Shetlands. The older areas, where there is less oil left to be extracted, are managed by dozens of smaller companies such as EnQuest (LSE: ENQ.L - news) .

Industry experts also have said squeezing every last drop of oil out of the North Sea will depend on appropriate tax incentives.

Recommendations on taxation, however, were not within the scope of Wood's review (SES: E1:OJ4.SI - news) .