There are various myths surrounding employee hires versus workers and vice versa – but which is the most efficient and sustainable option for the energy industry to see it through the next 50 years? Legally, people are either ‘employees’ or ‘workers’, the latter bill the employer through an invoice for a provision of services and the former are on the payroll. There’s a myth that we have two options, ‘staff’ and ‘contract’, but there are a variety of options available and a lack of creativity in this area can create issues for businesses. Employees are generally seen as lower cost, more loyal and, by some leaders, more productive than workers. However, in my experience, companies aren’t required to manage the quality of delivery of ‘workers’ any more than ‘employees’.
I was off by one letter. If you had told me a year ago that Shell was going to make one of the biggest acquisitions in energy industry history, I would have guessed the target was BP. Instead, Shell plunked down $70 billion for BG after a month of whirlwind talks that reportedly began with a Sunday afternoon phone call between the two top executives.
At this time of year our thoughts turn to technology, right? You did know April 26 is World Intellectual Property Day didn’t you? The “T” in OTC is for “Technology” not “Tee” for golf - but you knew that, right? Technology has the potential to revitalise this industry and the UKCS in particular. Almost irrespective of the oil price we need increased production at lower cost. And we need it soon. It’s not rocket science (or is it?). We need to promote, protect, resource and reward innovation. As for the “World Intellectual Property Day” I don’t expect you to wear the lapel badge. I’m a fan of Geeks, but for this brand they need a new PR company. However we all can, and should, be innovation champions.
The US shale gas and oil revolution is a key reason behind the current oil price crisis that is now proving such a huge challenge for the North Sea. In the UK, where shale gas exploration is in its infancy, the fracturing of wells (fracking) has become highly contentious and is now a general election issue. But what of China? After all, based on current knowledge, the world’s most populous country also possesses the largest shale gas reserves. And there is production. The Ministry of Land and Resources of the People’s Republic of China (the MLR) published a decision on November 3 last year, following the expiry of the exploration rights of the first of two shale gas bidding areas.
The latest Bank of Scotland’s report into the North Sea oil & gas industry presents a picture of optimism. It found that 92% of companies surveyed planned for growth over the next two years. After weeks of reports of an industry apparently in irreversible decline, the report may seem to some counterintuitive; but there again, perhaps not. The North Sea has been dealing with cost challenges for some time. Production efficiency on the UK Continental Shelf (UKCS) had dropped to a record low of 60% in 2013, from 80% only seven years before. Exploratory drilling, which is intensively tracked by Energy every month thanks to Hannon Westwood, followed a similar trend, with only 12 wells drilled in 2014 compared to 44 in 2008.
Ah, I’ve been waiting for this to happen ... the mega-mergers derby to begin, the starting gun being the current oil price slump. And it turns out to be Shell that got out of the gate first, which might surprise a few stock market pundits who know far more than ever I will about deal making or indeed horse making form than I ever will. However, unless you count the company’s $4.5-5billion takeover of Enterprise Oil in 2002, then Shell was conspicuously absent from the Mega-mergers Cup Race sparked by the late 1997 through 1999 oil price slump that sparked consolidation among a crop of listed Western oilcos and big supply chain brands. Naturally, there’s been a heap of punditry spewed so far as a result of Shell deciding that it wants to pick off BG Group. However, even I can see a number of good reasons for this particular deal, particularly on the assets portfolio front. And so-on and so-forth.
Imagine an uninformed stranger arriving in Scotland and examining what passes for an energy policy. What conclusions would be reached about the self-contradictory, self-defeating chaos that has been achieved so far? On the one hand, we have a Scottish government which has made massive virtue out of a low-carbon energy policy, targeting a generation equivalent to 100% renewables. On the other, we have one of Europe’s most polluting power stations scheduled for near-imminent closure. Our passing stranger might reach one of two conclusions, or possibly both. First, the closure of Longannet is entirely consistent with the stated objectives of the current Holyrood administration.
Firstly, seeing everyone else has had a crack at it I’d like to comment on George Osborne’s fiscal plan for the oil & gas industry. To be honest I was somewhat underwhelmed by the chancellor’s tax plans for the UK oil & gas industry. I still believe that Labour’s Supplementary Charge should be scrapped completely and I am very disappointed – although not at all surprised – that exploration incentives are now going to be consulted on when the Treasury has had over a year to come up with a plan. It’s also clear now that the so-called bareboat charter tax aimed at preventing drilling contractors and others from not paying their full whack of tax in the UK is going ahead in some form or another and I’m told, may be rolled in with the new rules on taxation of overseas companies such as Amazon or Google who have been accused of shifting profits overseas and thus avoiding their full UK tax liabilities.
If one believes the headlines, then the UK sector of the North Sea oil & gas industry is about to be crippled by strikes . . . the first for over 25 years. The catalyst . . . last straw . . . is the apparent decision among at least some operating oil companies to impose a new offshore rota of three weeks on and three weeks off as a means of cutting costs. This would replace the current two weeks on/three weeks off practice that grew out of previous friction between offshore workers and their employers and which was encapsulated in an agreement forged about 10 years ago for a raft of reasons deemed sensible at the time, including four weeks paid leave, an entitlement now being revoked. One is given to understand that the corporates driving the 3:3 agenda are Apache and CNR. It is said they are applying North American boot camp tactics; a style that simply does not work in Europe. Trade unions Unite and GMB have claimed that their offshore members are overwhelmingly in favour of striking. RMT is poised to ballot, though officials have indicated there may be a more pragmatic approach.
Robert Dowden had presciently anticipated Nigeria’s presidential electionsas the most important African event of the decade. Last week’s elections saw the tenacious opposition candidate former general Muhammadu Buhari triumph over incumbent President Goodluck Jonathan. This was Buhari’s fourth consecutive attempt for the presidency. He had a short spell as military head of state in 1984/85. Nigerian elections are usually characterized by vote-rigging; inevitability of incumbents winning as they violence and state’s petro-resources to capture the electoral process; and losers resort to violence. Last week’s elections broke the old traditions as observers judged them as exceptionally peaceful, free, fair and credible. Nigeria’s electoral commission introduced smartcards as innovative means of identifying voters - an innovation which singularly reduced the space for vote rigging.
Flames once again ripped through the darkened skies over the Gulf of Mexico. Workers, fearing for their lives, jumped into the black waters. Four died in the blast. Forty-five others were injured, including 16 who were hospitalized. The chilling video of fire engulfing an oil processing platform early Wednesday off the Mexican coast summons the ghosts of another disaster that happened in the same body of water five years ago. The Deepwater Horizon disaster was more deadly, killing 11 workers and seriously injuring 17 more.
The most recent press statement carried on the Pemex website about its Gulf of Mexico disaster in which four workers were killed and many more injured was issued yesterday morning and apparently last modified at 15.39 in the afternoon. There has been nothing posted since that I can see. The April Fool’s Day statement reads: “Early this morning (now yesterday morning) the dehydration and pumping area caught fire in the Permanent Abkatun platform in the Bay of Campeche. “Pemex’s Emergency Response Plan was immediately put in action and approximately 300 workers were evacuated and transferred to other platforms in the area. “It is with deep regret that we inform the death of a worker from the company Cotemar. “At least 16 workers from PEMEX and other companies have been reported to be injured, two of them in serious condition.” Etcetera, not that there was much more.
For months now, the industry has been discussing the need for a simplified safety agenda; industry-wide practices and policies which ensure the safety of the workforce, and which cut down on complexity, confusion and cost. The Step Change in Safety Leadership Team, the Steering Groups and workgroups agree. So what’s actually being done? Don’t get me wrong – positive conversations, productive meetings and active workgroups are great. But change is made when action is taken, not just talked about. There are many examples of how we’ve worked together to deliver common standards and achieve industry wide adoption. Here’s an example. In October 2014, Step Change introduced a Common Clothing Policy for the whole of the UKCS.
Aberdeen needed to attract around 120,000 new recruits by 2022 if it was to remain a global energy capital and capitalise on opportunities, according to PWC in 2013. But more recently, industry reports tell us that oil and gas sector employment could fall by as much as 35,000 over the next five years, partly driven by an anticipated 50 per cent fall in UK capital spending. However, research by EY into employment trends, commissioned by industry bodies and the Department for Business, Innovation and Skills (BIS), estimated that 12,000 new jobs would be created in the sector over the same period. One thing is certain: over the next 50 years our planning could be improved. One of the most common challenges listed by employers in the sector is the inability to effectively forecast and plan for resources, in terms of numbers and timing – let alone skill sets. To some extent, this has hampered our ability to grow our own talent.
The establishment of the University of Aberdeen’s first international campus will be a proud and significant moment in our long history. As an ambitious research-driven University with an international outlook, this as a hugely exciting initiative, and one which is a testament to our ambitions to position ourselves as a global institution which is at the forefront of energy-related research and teaching. The campus will be a mutually beneficial collaboration that will allow us to export our world-class educational offering to a new market in East Asia, providing education and training in offshore subjects relevant to the South Korean industry, and meeting the needs of the country’s economy.
The fall in the oil price these last few months has been a big help for anyone who drives a car and pays an energy bill. But I know that for the north-east that boon has come at a price. Last year, Sir Ian Wood, Aberdeen’s most successful businessman, left us in no doubt about the dangers facing the oil and gas industry in the north-east. It meant that, when I was preparing my Budget over the winter weeks, I knew full well that the country could not afford to sit idly by and watch one of our great British industries find itself in even deeper peril.
The oil and gas industry is continuing to ride a wave of challenges but it seems over the last year or so, the whole industry, has recognised the changes in the health and fitness of the offshore workforce. It is no surprise that the recent research by Robert Gordon University has indicated the body shape of offshore workers has changed with increases in weight and height, prompting industry groups to implement new processes and safety standards, which Falck wholeheartedly supports. As an offshore safety training and occupational health provider, we work very closely with delegates in terms of training and also on the healthcare side, so we are one of the first to notice changes in people’s body shape and actively try to advise delegates on health matters that could impact their job.
History will say whether Budget 2015 will be the end, or the continuation, of George Osborne’s drive to eliminate the UK’s deficit with a resultant reduction in national debt and a lessening of red tape. Across the energy sector, all eyes were on the widely anticipated tax reductions and incentives. The history of UK oil and gas will judge whether Budget 2015 was “just enough” or an opportunity missed. Last Wednesday’s announcements were partly expected and all welcome. The £1.3bn headline “tax giveaway” is all well and good. But this £1.3bn is arguably modest, and is the aggregate “tax reduction” over five years. More important than the headline, is the impact the measures will have on investment decisions.
“Necessity is the mother of invention.” So the saying goes and so it is true that crises can stimulate creative thought and challenge established norms in a way that seems difficult to achieve when all is calm and ticking over. In calmer waters thinking reverts to ‘continuous improvement’ and its promise of a more steady and paced level of delivery. With a familiar sigh of relief, comfort levels are restored and with it the pressure to challenge deeply held beliefs and working practices. So how is all this relevant to $60 oil? The answer is simple: The industry has an opportunity to make a real difference, to capitalise on a situation that is marked by great uncertainty but equally offers boundless possibility. It is a straight choice – the industry has only to give itself permission to frame it in terms of the latter.
A backdated tax cut? Am I dreaming? The Budget was good news indeed. Proclaiming eternal life for the UKCS was always above the Chancellor’s pay grade, but George Osborne’s headlines certainly help. The devil will be in the detail, and no doubt there will be some surprises (and I’m not talking of a winter fuel allowance for 4x4 drivers). Beyond his party’s faithful, for George Osborne the question is has he given enough to get your cross at May’s General Election? Before we declare a National George Osborne Day, let’s see how it pans out. Like an Easter Egg, this budget is definitely chocolate on the outside.
The Treasury certainly has been listening to the woes of the UK’s offshore industry, battered by the deadly impacts of collapsed global oil prices global oil prices and a fiscal regime that was totally unfit for purpose. Osborne, Alexander & Co have come up with a package of fiscal changes that definitely improve the situation. But do they go far enough? Oil & Gas UK’s chief executive Malcolm Webb certainly comes across as pleased in his initial statement; whether that view will be tempered once the measures have been fully digested remains to be seen. However, Alan McCrae, head of energy tax at PwC is an example of someone who is less sure. While acknowledging that the changes are for the better, his view matches mine ... that more should have been offered.
The North East needed a big confidence boost from the Chancellor yesterday when he stood up to give his budget. I believe that the tax cuts for the oil industry he announced plus the government’s support for a city deal for Aberdeen and Aberdeenshire gives us just that. As the north-east's most prominent oil and gas business figure Sir Ian Wood said, the Budget has provided an "essential lifeline" which "should help restore confidence." In short, it shows the North East is open for business with boosts to the economy, industry and infrastructure.
The Chancellor George Osborne in his budget has proposed reducing supplementary tax by 10% and to reduce petroleum revenue tax by 15%. Will these measures help save the North Sea oil industry from untimely terminal decline? For many decades the North Sea oil industry been the outstanding UK industry performer. In terms of high investment, job creation and sheer ingenuity and inventiveness it has raised the UK profile to record high levels. It has sustained the UK economy and safeguarded the UK’s energy security. It is a categorical imperative that it continues to do so for decades to come. Will Chancellor Osborne’s above proposals ensure that outcome?
As the 2015 budget is announced by Chancellor George Osborne, Energy's Editor Jeremy Cresswell gives his initial reaction to the measures which will be put into place for the North Sea oil and gas industry Looks like Treasury was listening. Obviously the single, basin-wide tax allowance was expected. So too the seismic survey allowance, which could prove a strategically shrewd move.
Budget 2015: Guest Editor Derek Leith says the current slump provides the oil & gas sector with an opportunity to reinvent itself
Following the slide in oil price, which commenced in earnest in July 2014 and by 31 December had fallen by more than 40% in 6 months, alarm signals have been sounding loud and clear throughout the sector. Collectively industry drew a deep breath on the 1 January 2015 as it pondered what the year would bring. Could the price go lower than the $57 recorded on the 31 December and how soon would the price rebound? Well the answer to the first question has been yes, to just over $45 on January 13, and the answer to the second is anyone's guess but looks increasingly like a slow recovery with many predicting an average Brent price of $75 for 2016.