I wasn’t going to write about the North Sea in this month’s eye. Rather, I was contemplating having a go at offshore wind, in large part because of the manner in which the UK’s unquestionably leading offshore presence in terms of turbines planted out there in UK territorial waters has been achieved.
The record $18.7billion Deepwater Horizon settlement is, first and foremost, a victory for BP. The company’s shareholders clearly recognize this. After the settlement was announced Thursday, giddy investors sent the company’s shares up more than 5%, adding more than $5billion to its market value.
Back in March when George Osborne delivered his final pre-election Budget, the key question was whether voters would reward him for the up-turn in the UK economy. The answer, at least south of the Border, was quite clear as the Conservatives secured a surprising majority victory on 7 May. Elsewhere here in the North East of Scotland, people would be forgiven for wondering what might be in store for them following the cold that the oil and gas industry has caught over the past year.
Last month, Treasury minister Damian Hinds pledged that the new UK Government would continue to support the oil and gas sector, and industry chiefs will be looking for the Conservatives to build on a number of tax breaks announced in the March Budget.
Despite the oil price being slightly more stable over the past three months, it is still significantly lower than the highs seen over the past few years. There is still a great deal of uncertainty as to the future price and the UK oil and gas sector is facing the challenge of re-basing costs and improving efficiencies to make the UKCS viable at a $60 oil price.
Cost cutting has become the new orthodoxy in the oil and gas industry since the price per barrel plummeted from $115 in June 2104 to $45 in January this year.
Every conversation I have had in recent months about the industry, whether it is across a boardroom table or over a pint, pretty quickly came round to the same theme. The days of plenty are over. We must all tighten our belts. And continue tightening.
Even the seagulls in Aberdeen knew that costs within the industry were too high and had to come down, maybe by as much as 40%.
There are different guesstimates as to how long the price will stay at the current level. History suggests that a low oil price cycle typically lasts for 2-3 years. This month marks the first anniversary of the start of the downwards slide.
Collaboration, collaboration, collaboration. If we’ve heard it once, we’ve heard it a thousand times. It’s an expression of hope, as well as a necessity.
So why is the industry struggling to get a grip on it?
Lancashire County Council has rejected two planning applications over the course of the last week for hydraulic fracturing (‘fracking’), on traffic, noise and visual impact grounds. One site was recommended for refusal on traffic grounds, but the other was recommended for approval and was turned down against Council Officers’ advice. This decision has generated the most interest of the two.
A committee of the U.S. House of Representatives last month approved selling some oil from the Strategic Petroleum Reserve to pay for speeding government approvals for new medicine.
It’s like raiding your kids’ college fund to buy groceries. Selling an asset, in this case oil, to fund a stop-gap budgetary measure that ought to be paid for through traditional funding avenues is not just short-sighted, it’s foolhardy.
Short-sighted spending initiatives aren’t a congressional novelty, of course, but there’s a bigger issue behind the House’s interest in raiding the SPR, one that lawmakers on the House Energy and Commerce Committee seem unwilling to address fully.
The 21 Century Cures Act that the committee approved would overhaul the process for approving new drugs and medical devices by pumping an additional $13billion over 10 years into the National Institutes of Health and the Food and Drug Administration.
The majority of daily oil production in today’s market comes from mature or maturing oil fields. New discoveries of reserves are not matching the pace set by the growing global demand for energy. This emphasises the requirement for new technologies that can enhance recovery from both active fields and future discoveries.
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.
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.
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.
By Professor Peter Strachan and Professor Alex Russell
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.