This year’s Offshore Europe is unquestionably the most strategic there will have ever been, both in terms of the breadth of the exhibition and the depth of the conference programme.
One result of the efforts made by the Offshore Europe Partnership (Reed Exhibitions with the Society of Petroleum Engineers) is that the show has attracted more Chinese companies than ever before and absolutely the most top-drawer of upstream leaders ever in its history.
This is not a parochial show; it is world-class, which is why, for example, John Manzoni, group CEO of Talisman Energy, will be present to discuss, debate even, key issues on stage at Aberdeen Exhibition & Conference Centre.
Manzoni told Energy that the conference theme, Energy at a Crossroad, was highly appropriate given the huge issues that currently confront the human species – issues that have been aggravated lately by a global financial crisis and wild swings in commodity prices – not just the price of oil, but key metals and minerals, too.
Manzoni suggested that the theme was deeper than just energy – the world is at a crossroads, in his view, and he feels that, while it is necessary to take advantage of the situation, it had to be in such a way that protected future generations.
As for the economic situation, he argued that a “house of cards” had come crashing down and lessons had to be learned from that.
“It was driving economic activity across the world in a way that was probably, in retrospect, unsustainable.”
Talisman is Canadian; Manzoni is a Brit who was imported into Calgary to lead the company and he sees Canada as one of the more sensible players financially.
“They look like shining stars … the Canadians have one of the strongest banking systems in the world,” he told Energy.
“There’s a lesson in there for us, but I fear there will be a tendency for less conservative countries to revert back if we’re not careful.
“In some senses, we’re seeing that … JP Morgan, Goldman Sachs and others now delivering some phenomenal results founded on very cheap money.
“If we’re not very careful, we’ll be lulled back into saying that actually it’s all sort of fine and that the way it was before the crisis was fine.
“But I don’t think that it was fine. Of course, it’s a very involved debate, but it is very relevant to energy.
“I’m an engineer. I like to understand how value is created, and value is created by making things and selling them.
“I’m sure that a good proportion of the value that was apparently created was a bit of a mirage and I worry that we’re not really yet grappling with the fundamentals that will ensure that the natural processes of innovation, which take place in the financial markets, and which take place in our industry.”
Manzoni said that, quite clearly, oil prices bouncing around between nearly $150 and, a few months later, sub-$40 a barrel was nonsense. He advocated creating a market structure that encouraged and sustained relative price stability.
“People like us need constant signals and constant prices in order to maximise the innovation in order to think about the long-term. I still say that industry is the best innovator … better than government-directed research … or anything else.
“Industry, whether the financial sector or energy, requires frameworks of a kind that allow us to go about our business in a market-orientated way … creating a market-based system that allows us to innovate for the long term.
“That’s why this is such an interesting set of issues for the conference. Moreover, it blends in climate as well.
“In fact, you can say the same about climate … governments need to take a point of view, set the framework … in this case, let’s say it’s the price of carbon.
“But industry then needs a price for carbon that is clear, transparent and which is probably global. Achieve that and it becomes possible to solve the problems.”
Manzoni argues that the results of the latest G8 conference, where further attempts were made to set carbon targets, showed how tough the challenge is.
“The world has globalised faster than the governance processes of the world … so you have global issues trying to be solved in a national context, and that’s very difficult.
“The need for global co-operation has never been greater. If anything, there’s a tendency to go in the opposite direction as nations wrap their arms around themselves and trend towards protectionism. It’s a natural instinct, which is why leaders need to be actively working against that.
“The issues that we’re facing are global and we simply haven’t got the mechanisms in place to manage them in an effective way.
“I actually believe there is a sensible role for government, and it’s not obvious to me that governments have been, thus far, able to act in that role in a way that either they would like or, in the end, that would be good for us all … to set in place an appropriate framework such that market actors can then go about their job without messing it up.
“In energy, because it is a long-term game, governments need to set intelligent energy policies, and particularly here in the United States, that just hasn’t been the case.”
It could be argued that the way in which stock markets tend to operate has forced listed energy corporations into living from quarter to quarter. But Manzoni seemed unruffled, reckoning that good companies worked to a long time horizon anyway. Those that didn’t would get the shareholders they deserved.
“If you pander to short-termism then you’re going to end up with a bunch of hedge funds in your stock, and they’re going to be looking for the quick buck. But if you set out a clear strategy and execute against that strategy, you’re going to get people who, in the end, say we like the strategy and we buy into it and we buy that the management can deliver, too, so we’ll buy in and wait for them to create value for us.”
Manzoni pointed out that the petroleum industry can be incredibly good at reinventing itself, especially if confronted by a crisis. He said the emergence of the now huge shale-based natural gas production industry showed what was possible. What was a few years ago non-viable and non-conventional had become a realistic proposition; indeed, had joined the ranks of the conventional.
Does that mean such a revolution is possible in the North Sea? Manzoni believes so, albeit in a different way as the hurdles that have to be crossed are so high.
“I think the UK Government has been quite astute. My observation is that, over time, the fiscal arrangements in the UK have relatively flexibly evolved in order to accommodate the different phases of that basin’s life.
“I’m bound to say that there are things the Government ought to be working on now that can help the next phase.
“We’re (Talisman) now a sizeable company both in the UK and across the world, and it gets tougher for us. The North Sea is mature, though that doesn’t mean there aren’t a lot of hydrocarbons still present. The issue about continuing flexibility of government to encourage the industry is a very important one.
“As the basin ages, one example I would pick out is decommissioning liabilities as this is getting in the way of the next wave of innovation in the UK North Sea.
“We have to put up what is essentially security money ready for the abandonment of our fields, and those abandonments draw nearer. The hot issue at the moment is whether that is tax-relieved money or pre-tax money. And if it’s pre-tax money then you have to put an awful lot more security in place which, frankly, precludes many of the smaller companies playing in the North Sea.
“We want post-tax money. I think this would unlock another wave where, in my portfolio, I could do some stuff with smaller companies for whom the last remnants of the older fields that we have would be material and important to them.
“It’s an example of the sort of flexibility that the industry requires in order to maximise recovery of hydrocarbons from that province. I can tell you now, we’re sitting on decisions and discussions where this is actually stopping us doing stuff that would otherwise happen.”
Leo Roodhart is the current president of the Society of Petroleum Engineers, and Offshore Europe is therefore one of his special duties – though as he pointed out, SPE organises many conferences.
He believes the 2009 show will be the best yet.
“The beauty of OE is that it is a truly international event. Yes it’s in Aberdeen, but you will see people coming from Brazil, the Far East, Africa, Russia, China and many other countries because of what it is.
“Reed has done a wonderful job of putting the exhibition together. The conference (that’s SPE’s responsibility) is not huge … we have bigger ones … but it’s getting better with more international papers and more international people presenting. It’s a good mix of technical and top-line people with key messages.”
He indicated that it was unfair to measure Offshore Europe against Offshore Northern Seas, in Stavanger, as the latter is, in Roodhart’s opinion, geopolitical in nature.
“We want Offshore Europe to be a large event with a very interesting conference that will address issues that are important for the world. For example, global warming is a major issue, not just for the world, but also the oil industry.
“Does that make it a geopolitical conference? I don’t think it does. Global warming brings with it technical issues that we have to tackle as an industry, and that’s why it is on the programme.”
Besides environment, Roodhart sees two other huge issues given priority at OE ’09 – diminishing reserve of oil and gas (at least conventional) and the state of the global economy.
“Such issues face not just this industry, but the globe in general. Consider reserves; it’s getting more and more difficult to find new reserves. The moment this financial crisis is over and China and India are growing again at double-digit rates it will be very difficult to meet demand growth in the coming years.
“Everyone is thinking the world is in a financial crisis, but the real crisis is energy.
“That is something our industry is very well aware of. However, on the outside, that seems to have faded in favour of the financial crisis. That seems to be more important to the media than the energy crisis that is looming. We need to address that as an industry and as the Society of Petroleum Engineers.