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.
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.
By Lena Wilson, chief executive of Scottish Enterprise and chairman of the Energy Jobs Taskforce
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.
Most Energy Voice readers are almost certainly too young to remember the former Prime Minister Harold Wilson or the famous speech he made at a conference in 1963 in which he effectively warned that if the country was to prosper, a “new Britain" would need to be forged in the “white heat" of the so-called “scientific revolution" that was perceived to be taking place at the time.
Wilson was right and that era certainly saw some dramatic technological developments of which the ones that stick in my mind are Concorde as well as other aircraft like the TSR2 and of course the beautiful E Type Jaguar car.
At that stage the country was seen as a global technological leader alongside the US and had even developed its own successful rocket – the Black Arrow – for satellite launching.
Sadly, of course, none of this lasted. Wilson’s aspirations were effectively killed off on the back of neoliberal economics ideology and any lead the UK had along with its huge talent were squandered.
As the Offshore Technology Conference OTC kicks off in Houston, Texas today companies in the UK oil and gas industry are turning to new technology as a way to breath fresh life into the sector during challenging conditions.
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.
