Exclusive: Bilfinger chief says North Sea not an elephants’ graveyard

Mark van Baal said scope three was the elephant in the room at the AGM
Mark van Baal said scope three was the elephant in the room at the AGM

The chief executive of German industrial services giant Bilfinger said yesterday that the North Sea has not become an elephants’ graveyard.

Tom Blades said the oil and gas industry is “very innovative and creative” and can produce for longer than people think.

Mr Blades also said that the group’s Bilfinger Salamis UK business, which provides inspection and maintenance services for North Sea oil and gas and renewables customers, was enjoying good volumes of work.

But he said North Sea customers were squeezing harder than ever before on contract rates during the most recent downturn.

Tom Blades, CEO Bilfinger SE

Speaking at Offshore Europe 2017, he said some customers were trying to lock in lower rates for as long as 15 years.

In previous downturns, clients attempted to negotiate cheaper contracts for three to five years.

“For Bilfinger, the (work) volumes are good but the pricing is tough,” Mr Blades said.

“This goes with the cycle. No one likes to admit that when customers are under pressure, it rolls down onto suppliers.”

Mr Blades said suppliers understood that lower oil prices mean there is not as much cash to go around, but they do want an open dialogue and guarantees on volumes.

While there is a reluctance to sign such lengthy contracts at depressed rates, that’s often the end result, he said.

“You have to make a good analysis and do your homework,” he said. “We’ve been doing this for a long time. We have a lot of experience and we know our customers.

“If we have a new customer and they want a 15-year contract, then we say no.

“But if it’s a customer who we’ve worked with through previous good and bad times then, yes, we do end up signing.”

Mr Blades did say that clients were “open” to making “adjustments” to terms as the sector moves into deeper water and harsher conditions.

“It’s about sharing the pain, but also sharing the gains when things get better,” he said.

Mr Blades also said he was encouraged that more small independent oil firms were emerging in the UK North Sea, while majors are increasingly focusing on their core assets.

“Smaller independents drive innovation and are not afraid to tackle difficult projects and that’s going to prolong UK North Sea production for longer than people expect,” he said.

“… We do not know how long customers need to keep the assets going, but they do need to keep them going.

“We help operators to do that.”

Mr Blades said he had “confidence” in the North Sea and in Aberdeen.

He also said experience had taught him that bad times don’t last forever.

He said: “I’m 60 years old. I started working with Schlumberger when I was 21.

“I’ve worked in oil and gas for 40 years and I’ve seen cycles several times – maybe four in that time and it’s always the same.

“When the industry is down, people do not see it going up again, and when it’s up, people don’t see it going back down, but it always does.”