Could you be taking yourself too seriously this year? Stress is a major occupational hazard whilst the oil industry is under such pressure. Summer is upon us. However temporarily, it is time to “take your life back”. Our relationship with holidays can be an uneasy one. Former BP CEO Tony Hayward’s many distinctions will never eclipse the picture of him out sailing in the UK as attempts were being made to plug Macondo. Sunglasses and a baseball cap protected him from the Sun, but not from the tabloid of the same name. President Obama heard about it, and didn’t like it. For many 2015 is a difficult year, but who would swap with Hayward’s 2010?
Earlier in the week Amber Rudd gave a parliamentary speech on the controversial curtailment of onshore wind subsidies, but at the same time gave some positive signals on future prospects for UK offshore wind.
Protecting intellectual property (IP) remains one of the most challenging areas for SMEs in the oil and gas sector.
Companies do not equal value. My nine year old daughter, Emma, comes home and tells me “Mike’s dad owns two companies, how many companies do you own?” Mike has clearly impressed her. Yet, particularly in the current climate, those of us who can tie our own shoes should be a little more circumspect.
The current challenges facing the oil and gas industry have led to numerous initiatives and proposals to both reduce cost and increase efficiency.
There may not appear to be an obvious link between the prospects for North Sea oil and gas and the recent successes of British Cycling. But the innovative thinking which delivered Olympic gold medals and Tour de France victories could also benefit the UK’s energy industry.
The announcement by Energy Secretary Amber Rudd to close the renewables obligation (RO) for onshore wind-power generation has undermined a central plank of UK energy policy. One of the key successes of the Labour and the late coalition government was to deploy large quantities of cheap and secure onshore wind-power generating capacity across the entire British isles.
The marginal recovery in the price of Brent crude in February was more or less wiped out again in March and now seems to be levelling out somewhere around the $60 mark. ‘After-shocks’ are likely to continue making predictions about what will happen next, more art than science. Some economists have suggested the market remains over-priced and that $35 or even $30 oil isn’t beyond the realms of possibility. Let’s hope they’re wrong.
The premier league of global E&P has changed dramatically with the USA overtaking both Saudi Arabia and Russia to become the world's largest oil and gas producer in 2014. The last time the USA was the world’s largest oil producer was in 1975. The impact of this change will no doubt have profound implications in geopolitical terms. So what about the UK’s position in the elite oil and gas premier league? According to the BP Statistical Review, the UK ranks now in the middle of the pack out of more than 50 countries in terms of oil and gas production in the global E&P table. The UK’s contribution has declined from c. 4% of the world’s production in 2000 to c. 1% in 2014. It is expected that the world’s oil and gas production will continue to grow over time to meet the ever increasing demand. With the UK’s production declining further in years to come, the UK may be relegated from the oil and gas premier league, unless we find ways to re-invigorate exploration, increase appraisal drilling and new field development activities in the UK.
After three years of relatively stable oil prices averaging around $100 per barrel, the sharp decline which began last summer has shaken the industry with the repercussions being felt across the globe. This was underlined when I attended the OPEC Summit in Vienna last month where a number of highly regarded industry speakers, provided different perspectives on the reasons for the fall in oil price and their take on what we must do to survive and come out fighting when the market picks up. Many believe the commodity price slump was a direct result of the sudden increase in global supply due to the US shale revolution. Others attributed it to geo-political reasons while others argued that it was cyclical, following years of high oil prices.
Os have had to think long and hard this year. They have discussed the finances of their companies with board members and reached decisions that have changed lives. There is no right or easy way to adapt to a new or significantly changed economic environment.
In business, good news has the habit of being bad news for someone else. Last year’s fall in the cost of oil and gas was great news for households: it meant lower bills and less pain at the petrol pumps. But I know that for those in the North Sea oil and gas industry, there were few celebrations. We took this seriously – because this is an industry we want to see succeeding. Our oil and gas industry is our biggest industrial investor. It supports hundreds of thousands of jobs. Its performance is directly linked to our GDP and, longer-term, our energy security.
Amber Rudd the Tory Government’s new Secretary of State for Energy and Climate Change has made it clear she intends to make substantial changes to onshore wind financial support schemes in compliance with her party’s manifesto pledge to end “new public subsidy” for renewable wind power generation. There may be some public support for this move if it is perceived as an attempt to create a level playing field for providers of energy, which would indeed be an admirable ambition. But in reality such a policy change almost beggars belief. Perhaps the only great achievement of the late UK coalition government, with a huge amount of support from Holyrood, has been the successful deployment of onshore wind power generation; the achievement of renewable energy targets in Scotland is testimony to this success.
It is almost exactly two years since the Offshore Safety Directive 2013 (the Directive) was adopted by the EU, a move which stems from the European Commission’s concern following the Deepwater Horizon incident in April 2010 that the existing regulatory framework for offshore safety in the EU was “divergent and fragmented”. Further, the Commission was concerned that it did not provide adequate assurance that risks from offshore accidents were minimised throughout the Union. As a result, the Directive now includes requirements on member states to ensure that operators of existing and future offshore oil & gas operations in the EU are appointed by licensees or licensing authorities. They must also take all suitable measures to prevent major accidents in offshore oil & gas operations and prepare safety documents, including emergency response plans, corporate accident prevention policies and safety and environmental management system documents, and submit them to the relevant national competent authority.
An ageing asset doesn’t mean unmanageable, unprofitable and inoperable. There is still potential to be realised from the UK Continental Shelf (UKCS), despite the challenges of the current climate. In terms of oil alone, it is estimated that there are around 25billion barrels to be recovered. Global demand for energy continues to escalate and fossil fuels will carry on contributing to the mix. The UK Government is also committed to supporting the sector, as we have seen from the prior administration’s positive response to Sir Ian Wood’s 2014 state of the industry report.
Continuing to offer robust staff training programmes throughout the industry downturn may not seem like a top priority. However, my team certainly challenged me on my decision to slow down our training offer. It felt like the right thing to do at the time. But was it the best approach?
There was probably much searching of “Who’s Who?” last month when Amber Rudd was anointed as secretary of state at DECC and Andrea Leadsom emerged as energy minister in the same department. The first slight surprise was that the department still existed. With the Liberal Democrats having committed hari-kari, it would not have been a surprise if energy and the green bits which surround it were reunited with the world of business and enterprise at 1 Victoria Street. Ms Rudd is an Edinburgh University graduate, a banker and clearly has been on a bit of a fast track in government, as PPS (parliamentary private secretary) to the chancellor of the exchequer and latterly as a junior minister in DECC. Indeed, it is a CV which suggests competence and ambition.
On any given day, you can download multiple financial forecasts of future prices for almost everything from shares in individual companies to the price of wheat, coffee or oil. I am really interested in the expected future price of oil because my company does most of our work in the oil and gas industry. If you read the analysts’ views on the oil price and the rationale behind their forecasts, they all sound credible. In fact, they always have, yet they have often been wrong. Few forecasters predicted the sudden oil price swings up or down over the last few decades, and none of them predicted the collapse in price in the last few months. Today, they can all point to the reasons why it happened and show how obvious it was, so obvious that none of them foresaw it.
In the week before the general election on May 8, a “weel kent” and highly respected financial newspaper reported that our friends in Norway have earned more in the last quarter from their “oil fund” than the Norwegian government had actually spent. By any measure this is an astounding achievement and is testament to the Norwegian’s intelligent and strategic decision to set up the fund in the first place. Interestingly though, this event wasn’t to my knowledge reported elsewhere in the media and it certainly didn’t make it on to the mainstream television news. Perhaps though, that’s not surprising because, of course, although it may not be repeatable every quarter, it would have reflected very badly on all those unionist politicians who have worked so hard over the past few decades to deny Scotland the financial security that Norway has now so brilliantly achieved.
I’m thinking that this commentary could end up irritating some of the UK offshore industry’s leadership. If that is the case then so be it; but there’s a lot about the North Sea oil & gas industry that’s worrying one helluva lot of people whose lives hinge on its health. Some 5,000 jobs gone, it is said; thousands more to go, it is said too. My first concern . . . beef if you like . . . concerns just how much of the UKCS production capacity is rendered non-viable by basement oil prices. And the reason is that I seem to be hearing different numbers from different people, all of whom appear to claim to quote Oil & Gas UK’s latest dataset, viz the 2015 Activity Survey.
We’re all acutely aware of the challenges which face the oil and gas sector right now – many of you reading this article will be either directly or indirectly affected by the marked and sudden reduction in the oil price and the subsequent impact on the sector. We estimate that over 5,000 jobs have been announced as being lost or at risk. While we know that the oil price fall has brought the sector into sharp focus, the current situation is as much about regeneration and readjusting our cost base. That’s why in January this year Scotland’s First Minister, Nicola Sturgeon, announced the creation of a taskforce to help tackle not just the immediate impact of the volatile oil price but also the pressing need for the industry to evolve, transform and modernise.
If 14 frogs sat on a log and three decided to jump into the water, how many would be left? I know what you’re thinking – 11. It’s simple arithmetic, right? Wrong. Read the question again. They decide to jump in; but the question doesn’t say they actually jump. So there are still 14 on the log. After all, there’s a big difference between our intentions and our actions.
I don’t know how many of you have noticed, but women are taking over at the top of the energy hierarchy in the UK. Whilst I’m still waiting for a female to topple various of the male-dominated fiefdoms that still rule in the boardrooms of oil majors and independents active on the UK Continental Shelf, five key trade, regulatory and government positions are now held by women. They are Amber Rudd ... newly appointed energy secretary, Susan MacKenzie (HSE), Maria McCaffery (RenewableUK), Dr Nina Skorupska (Renewable Energy Association) and Deirdre Michie (OGUK). This could do more than anything that has ever gone before to finally get some balance into the boardrooms and executives of the UK energy industry ... both upstream oil & gas and power generation. The shift should be welcomed. A bit less testosterone in the UK energy sector ought to be good for us all.
Only two weeks after a pilot was killed during a test flight of a prototype vehicle that should one day allow paying passengers to travel briefly into space, it was fascinating to see that scientists had successfully landed a probe on a comet some 300 million miles away from Earth. The history of space travel is marked with tragedies and illuminated by spectacular achievements. The first manned flight into space by Yuri Gagarin in 1961, the Apollo 8 crew who first saw the dark side of the moon in 1968, and probably one of the highest points in human history when Neil Armstrong was first to set foot on the moon on 21 July 1969 just to name a few.
In 2013, it was apparent that the UK offshore industry faced three significant challenges, each posing a very serious threat if not overcome. We had an uncompetitive tax regime, weak and ineffective regulator within the Department for Energy and Climate Change (DECC) and a cost base which was, frankly, out of control. We at Oil & Gas UK therefore adopted as our top priority the tackling of these three very serious threats. Following much work within our organisation and across the industry and government, I think we can regard the overall situation as now improving quite considerably. However, we are by no means out of the woods and there is one challenge on which we have not made enough progress.