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Come back Britoil – all is forgiven

Come back Britoil – all is forgiven
We are told by Deloitte that the number of exploration wells being drilled in the UK North Sea collapsed 78% in Q1 this year compared with the same period in 2008. On top of this, Oil & Gas UK thinks that the total amount of UK North Sea drilling could fall by nearly 70% this year.

We are told by Deloitte that the number of exploration wells being drilled in the UK North Sea collapsed 78% in Q1 this year compared with the same period in 2008. On top of this, Oil & Gas UK thinks that the total amount of UK North Sea drilling could fall by nearly 70% this year.

The UK North Sea’s leading trade body is also saying that, instead of still being able to meet 45% of the UK’s oil and gas demand in 2020, the collapse in investment may lead to the UKCS meeting only 12% of demand.

On the face of it, this is, of course, not good news. It could, and probably will, lead to a downturn in associated UK North Sea activity, and possibly job losses as well.

It will also certainly lead to reduced tax revenue for the Treasury, although that may not be a bad thing given what this Government tends to spend it on – it seems that most, if not all, North Sea tax revenues have gone straight into propping up the financial services sector.

Of course, one basic problem is the oil price, which is currently deemed too low for companies to risk investing in drilling for what are perceived to be relatively small fields. Or rather that’s the normal answer to why the UK North Sea is seeing such a downturn. However, the truth is almost certainly somewhat different.

The IEA has said that, due to the intensity of the global recession, only 83.4million barrels of oil per day will be needed this year. That’s about a couple of million barrels per day down on what might have been expected under “normal” global economic conditions of growth.

So is it the downturn in demand that’s causing the problems in the UK North Sea by driving down the oil price? Well, it could be, but I also think it’s quite possibly something else, and here’s why. Earlier this year, the director of Deloitte’s Petroleum Services Group said: “In comparison to the UK, Norway experienced significant growth in activity in 2008. During the fourth quarter, a total of 17 exploration and appraisal wells were spudded in the Norwegian sector, with StatoilHydro operating over half of these wells.

“There has been an 89% increase in drilling activity when compared to the number of wells spudded during the fourth quarter of 2007, and a 70% increase over the number drilled in the third quarter of 2008, reflecting the fight to maintain Norwegian oil production against a declining trend in ageing North Sea fields.”

Now, admittedly, the 2009 forecast for investment in the Norwegian sector has been reduced by about 5% or so, but this still means that the outlook for the Norwegian industry would appear to be fairly good. So is the “something else” the fact that Norway has StatoilHydro which, although partly privatised, is still 67% owned by the state?

Could it be that StatoilHydro is leading “the fight to maintain Norwegian production” because it believes this is part of its remit? I think it does and, if I am correct, and I strongly suspect I am, perhaps this should be the model that we need to be looking at. In other words, bring back Britoil – the UK state petroleum company that Labourite Tony Benn created and former Tory PM Margaret Thatcher destroyed.

Having a Government-owned or part-owned energy company capitalised initially by taxpayers’ money is really not a lot different to having a couple of nationalised banks. In fact, a properly constituted – let’s call it Britoil for old times’ sake – would be a better deal in the long term than simply providing emergency tax breaks to the existing private companies.

A Britoil is more likely to drill in both the bad times and the good times than a private operator. It is also more likely to invest in new technology – another thing StatoilHydro has done – than its private counterparts, and to give a hand up to aspiring new technology companies.

We all know what Statoil achieved in terms of helping Norwegian industry and, although it’s perhaps a bit late in the day, there is no reason why a reconstituted Britoil couldn’t do the same here.

Now, I can already detect the free marketeers shifting around in their seats and preparing to put pen to paper. But consider this. Like it or not, almost every country that has an oil&gas industry has one or more energy companies that, if not owned wholly or in part by the state, still operate in a “patriotic” manner.

Those of us who have been in the industry for a long time know that every American company is an ambassador for American technologies, that French and Italian companies have helped their national service and technology companies and that the Brazilians, while being very international in outlook, are intent on growing their indigenous capabilities.

There is nothing wrong with any of this. It is entirely natural for a country to want to control and manage its own resources. Well, not us, of course. We – by which I mean the Treasury – just wanted the tax money as fast as possible. Sadly, all that other stuff about growing global hi-tech value-adding companies and managing our reserves sensibly wasn’t deemed important.

Our peculiar – although perhaps now somewhat strained – belief that only the private sector can run things like energy companies may be something we need to look at without our normal British prejudice.

After all, it is quite likely that the UK Government is about to do a deal with a French state-owned nuclear power company to build a bunch of new nuclear power stations in England. One must assume from this that state-owned companies are not entirely unacceptable to the Government.

I said at the beginning that the various reports on North Sea activity were, on the face of it, not good news. They aren’t, except perhaps that they may force us to re-examine how we do things in the UK, and that has to be a good thing.

Our North Sea resources are precious and we need every barrel we can extract. If that means overturning the last few decades’ worth of dogma and learning from the success of others, then let’s do that.

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