We are where we are, it seems, for the relatively long haul. Bob Dudley, of BP, says the oil price won’t rise much for two or three years.
Goldman Sachs have dropped their three-month Brent prediction to $42 a barrel. And the Saudis said at the Davos Forum that around $50 was the most probable level for some time to come.
So there’s not a lot of good news around.
In these circumstances, the North Sea industry needs all the help and creative thinking it can get. The challenge of how to keep investment going has never been more acute. And, of course, it is shared by oil & gas producing territories throughout the world.
I suppose given that I’ve written previously about so many similar instances I really shouldn’t have been surprised when I read that an organisation called “Social Investment Scotland” was doing a deal to help fund a developer of low carbon projects install an Australian-developed micro combined heat and power unit (MCHP) on initially seventy but potentially up to three hundred and fifty properties across Scotland with a view to helping residents reduce their fuel bills.
The company producing the MCHP is Ceramic Fuel Cells Ltd and according to their website they were spun out of the Australian Government's Commonwealth Scientific & Industrial Research Organisation (CSIRO), their corporate head office and research and development facilities are in Melbourne and they have a fuel cell assembly plant in Heinsberg, Germany, and a ceramic powder plant in Bromborough in the UK.
So perhaps not surprised but just downright gobsmacked that once again we have let an international competitor steal a march on us in an important area of technology.
It’s perhaps even more frustrating because I know that at least two of our universities have specific recognised expertise in fuel cell technology. In fact, a few years ago one tried to commercialise a ceramic fuel cell but as is often the case in Scotland, couldn’t get together the funding.
It seems that a measure of common sense has prevailed over the future potential fracking of shale gas & oil wells in the UK.
After a failed attempt by a group of MPs to get a moratorium imposed on the practice under the Infrastructure Bill currently making its way through parliament, some sort of compromise position appears to be emerging.
So long as the Bill isn’t derailed in the House of Lords, it looks as if the UK’s putative shale gas & oil industry will get a green light giving access to large tracts of England.
But I am pleased that relevant ministers have accepted the need for a do not touch approach when it comes to national parks, areas of outstanding natural beauty and where drinking water is collected.
Sadly, there has been political talk and expert commentary that safety will suffer as a result of the industry’s current ‘crisis’. And that we shouldn't be under any illusions that we don’t need to make some difficult decisions.
So where does safety sit in the unholy trinity of safety, cost and production?
Firstly, we need to look at what we say and what we do.
As we are well aware, the UK oil and gas industry has been hitting the headlines. Right now the focus is on the impact of the falling oil price, a cause for concern in terms of investment and jobs.
Underneath the current headlines, however, are the serious problems our industry has been facing for a number of years including a dramatic decline in exploration, rising operational costs and a substantial drop in production efficiency.
While the rapid fall in oil price has exacerbated these existing problems, we believe there is significant potential for maximising economic recovery of oil and gas from the UK continental shelf (UKCS) through collaborative work between the industry, HM Treasury and the new regulator, the Oil and Gas Authority (OGA).
Days after our annual celebration of Scotland’s bard, it was a perfectly-crafted Robert Burns quote which opened Scottish Renewables’ Offshore Wind and Supply Chain Conference (Jan 27).
Data from Oil & Gas UK puts the average cost of operating a field in 2013 close to £30m. This is a significant increase on the £23m reported for 2011, with costs continuing to rise more or less linearly in that time.
Concerns over the rate of increase in lifting costs are nothing new; however, the more recent and rather dramatic fall in the price of crude has elevated the level of concern from ‘challenging and worrying’ to something approaching ‘crisis point’.
One thing is for sure: Both the absolute level and rate of growth are unsustainable and, if not arrested, will curb investment in the UKCS and forever change the shape of the industry in the UK.
The events of 2014 have demonstrated just how quickly political and economic risks can escalate and shift into large-scale crises, even in historically stable countries.
As we move into 2015, the biggest sources of uncertainty for many energy firms will be volatile commodity prices and political risk. That’s reflected in our Political Risk Map, produced with Business Monitor International (BMI), which details overall risk scores for 185 countries based on three categories: political, macroeconomic, and operational risk.
Falling oil prices will undoubtedly be the biggest concern for oil and gas companies. In the last five months, we’ve seen the price of Brent Crude drop from more than $100 boe to around $60, a reduction of more than 40%.
Antrim’s discovery of a “proxy tabulation error” sent a shiver down the spine of those of us who attend corporate meetings. Resolutions are easier to calculate than oil reserves, but it’s still no game for amateurs.
Antrim Energy’s shareholders thought they had resolved to appoint a chairman in December.
By Hogmanay the person they thought they had in place had been invited to “resign” due to what was referred to as a “proxy calculation error”. Instead of receiving the reported nearly 80% of the vote he actually received nearer 21%. Unlike for oil reserves, reporting resolutions is not supposed to be a “probable” against “possible” exercise.
There is no denying that we are in a challenging time for the North Sea oil and gas industry. However, it is how we now meet that challenge that is so important for the long-term future of this industry.
For some time we have experienced unsustainable levels of wage inflation and whilst recognition of the need to reduce this is not new the dramatic fall in the price of oil has accelerated the need to address this.
Our strategy groups have been in place looking at these issues and longer-term solutions but we are now facing a particular dilemma where operators are looking to reduce costs promptly, especially for those with operations where costs are outstripping revenue.
This will be a challenging year for the North Sea but the necessary austerity may create a new appetite for near-to-market technologies.
The average cost of bringing oil to the surface globally is around $7 a barrel, in the North Sea the average is $28, and in some of our fields it is nearly four times that.
As a result, the second half of 2014 was brutal to North Sea operators’ profit and loss accounts with 2015 offering no respite.
Operators are prioritising cost efficiencies and reappraising capital programmes, while the supply chain is doing its bit as part of the industry belt tightening.
As the oil price plummets to its lowest level in more than a decade, oil and gas industry bosses in the north-east are making cuts to curtail declining profits.
We can’t avoid that reality.
The energy sector is increasingly feeling the pinch and staff layoffs are inevitable as challenging times ensue over the next quarter and beyond.
Redundancies in any company during a recession are tough. But in a cyclical market, it is important to try and make the process as pain-free as possible for those whose jobs could be at threat.
The North Sea oil industry is one of Scotland's great success stories.
For decades it has sustained thousands of jobs, generated billions in tax revenue and acted as a platform for exporting the talent and expertise of this great nation around the world.
But the industry is at a crossroads.
The North Sea survived the oil price crash of the mid 1980s, which saw Brent sit at around half of its pre-86 level for over a decade.
The oil industry is, by its very nature, cyclical.
In the 80s the North Sea was at a very different stage in its life.
I’ve been told that scores of companies in and around Aberdeen are now letting go of people as the oil price-driven depression deepens in high cost oil & gas provinces around the globe.
The likelihood is that several thousand jobs in our area have either gone or are about to be axed.
Remember, it’s not just the UKCS that’s being hammered.
During the holidays, a friend was driving home and said she spotted a fracking well soon after she crossed into Texas.
She wasn’t happy about it. Another friend posted on Facebook a picture of gas prices below $2 a gallon — something that hasn’t happened in more than five years — and commented that the low price made him feel as if “he was stealing something.”
In America, the world’s largest energy-consuming nation, the biggest fractures occur not in deep underground shale formations but in the way we separate our perceptions of energy from reality.
Alex Salmond was quoted in Energy Voice's sister publication, the Press and Journal yesterday, as saying that “oil was too important to leave to Westminster”.
Given that he based his projections for an independent Scotland on $110 a barrel and got it very, very wrong, I would agree with the majority of Scottish people that oil is far too important to leave to him.
The continuing fall in the price of oil, while good for reducing pump prices and keeping costs down, is clearly a huge issue for the 375,000 people across the UK who work in the oil industry and related activities.
By Professor Alex Russell and Professor Peter Strachan
Secessionist supporters will long remember 2014 as the year when Scotland came close to grabbing the mantle of freedom.
Non-nationalists voters will see things differently as they salute the continuance of what they perceive to be the security blanket of being a member of the United Kingdom, despite having witnessed the unedifying spectacle of Clegg, Cameron and Milliband linking arms as they promised the earth for a ‘no’ vote.
The Smith Commission’s devolution recommendations have already been dismissed by ‘yes’ voters as too little and frankly too focused on devolving administration rather than power.
Membership of the SNP has soared as a consequence.
By Professor Alex Russell and Professor Peter Strachan
Predicting oil price movements is as risky as exploring for oil itself. The average price for crude fell 10.3% from the start of 2014 to the date of the Scottish independence referendum on September 18.
It fluctuated over this period – but few, if any, were predicting any major move in either direction in the months to follow.
Yet during the past three months we have seen another 48.4% fall. Geopolitical factors involving OPEC, the US, Russia and Iran, as well as the economic decline of China and the Eurozone, have been touted as contributory causes.
Last year, I wrote about how EU sanctions restrictions were starting to bite on the industry, particularly in light of newly implemented restrictions against Russia, Crimea and Ukraine introduced throughout 2014.
These rules have seen an increase in sector-specific sanctions, targeting particular oil and gas activities (deepwater, Arctic and shale projects in Russia in particular), specific types of oil-related technologies and associated services, including drilling, well-testing and the supply of specialised floating vessels.
With ongoing amendments and additions to the restrictions through to the end of 2014, it can be fairly assumed that sanctions issues will continue to be a common concern for business in the new year.
Today, the price of Brent bland passed to the dark side, falling below $50 a barrel though it did cheer up a little later.
Given the now colossal slide from $115 on June 19 and the determination of OPEC to stick to its decision made in November to defend market share, it is hard to know when and where bottom might be reached.
Gradually, it is dawning that this won’t be a short-sharp nasty event.
It is clear that upstream oil & gas will be a tough place for the next 12 months. The compound impacts of high-cost production coupled with low oil prices will squeeze profitability for all stakeholders.
It looks unlikely that oil prices will improve in the short term, as such. That means the industry has to focus on the one area it can influence – cost.
If you consider the macro position, we at Douglas-Westwood are of the view that the fundamentals are still intact and on the whole favourable.
The industry is going through what oil workers have described as a crisis period. At the time of writing, the oil price has fallen below $54.
That's less than half the price predicted by the SNP in their White Paper, which formed the economic basis for their independence case.
But more immediate than the politics is the fact the plummeting oil price has resulted in a number of firms cutting the wages of their staff.
The speed with which the North Sea’s prospects have become engulfed in crisis and doom-laden predictions has taken the world, and not just our own small corner of it, by surprise.
At the outset, let me make the following clear:
First, the UK offshore oil and gas industry faces some very serious challenges but it is NOT in danger of being wiped out. While the industry is certainly not enjoying the best of health right now, it can and will recover.
Second, the troubles we face are not all down to the recent fall in the price of oil, that is a serious complication but it is not the root cause.
Third, while I am certain that these problems can and will be overcome, the cure, if it is to be effective and lasting, requires urgent, positive and collaborative action by all stakeholders across Industry and Government over the coming weeks, months and years.
