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Seeking to squeeze every fiscal pound from ageing cash cow

Seeking to squeeze every fiscal pound from ageing cash cow
Oh, dear, do we really need another inquiry? Given the nature of the business, the North Sea oil&gas industry is among the most intensively monitored of all by the UK Government - the Treasury especially as it seeks to squeeze every fiscal pound it can from this ageing cash cow.

Oh, dear, do we really need another inquiry? Given the nature of the business, the North Sea oil&gas industry is among the most intensively monitored of all by the UK Government – the Treasury especially as it seeks to squeeze every fiscal pound it can from this ageing cash cow.

ALSO, given all that has passed between Oil & Gas UK and Government departments over the past year or so, and recent signs of fiscal adjustments being contemplated, what else can be achieved through MPs generating yet more hot air?

This is a time for meaningful action, not further dithering by DTI, BERR, DECC or whatever the department calls itself this year – oh, and by the Treasury, too. While no one is panicking out there, the North Sea is now clearly suffering, with today’s $45 barrel very roughly equivalent to $16 oil in 1999, except that the province is a lot older and creakier than then.

OK, we are told that the decision to launch the investigation was taken at the first meeting of the new energy and climate change committee at DECC, and I guess that means there will be some around that table who haven’t a clue about North Sea oil&gas and its criticality to the tattered UK economy.

So it is laudable that the topic, including West of Shetland gas infrastructure – or rather the absence of it – has found its way on to DECC’s priority discussions list thanks to the efforts of Angus SNP MP Mike Weir and West Aberdeenshire and Kincardine Liberal Democrat MP Sir Robert Smith. Of course, any opportunity to get the North Sea an airing in the corridors of power has to be good. It certainly gives Oil & Gas UK another opportunity to hammer home its concerns for what is one of the few remaining jewels in the British business crown.

As for Weir’s reference to the West of Shetland gas problem, the answer is very simple – and it was staring Chancellor Darling and PM Brown in the face last year at the Raemoir House meeting. Government should seed-corn the pipeline with public money. Heaven knows the excellent Michel Contie, of Total, especially, has been battering on about this for several years.

Surely Brown and Darling have to see beyond the ends of their short-term money-grubbing noses on this one. Indeed, it might even suit Treasury self-interest if they did. Just think of those lovely additional tax revenues in the years to come.

LIKE so many of us, I have been following the banking debacle with morbid interest tinged with fear, wondering where it’s all going to end. I feel that every family in the land has been violated by the breathtaking stupidity of “Fred the Shred” Goodwin and others. The staggering level of public money that the banks now need to stay afloat is highway robbery by another name.

I’ve had conversation after conversation with the MDs of fine wee companies in the oil&gas supply chain these past weeks. Without exception, all fear for the future of businesses that they have patiently built up. Even firms with strong balance sheets are living in terror, and woe betide any that actually manufacture things.

You get special attention from the banks then – and it’s not the kind that’s welcome. One is told bankers don’t like manufacturing.

A financial system that looks increasingly as if it’s rotten to the core is not only threatening the very existence of the North Sea’s indigenous supply chain and driving away potential inward investment, it’s dangerously close to wrecking the efforts of new-generation exploration and appraisal minnows that Government put so much effort into attracting.

The situation is so bad that, for many months, if a minnow makes a significant new find in the North Sea, the likelihood is that the market will mark that company down – share price falling rather than rising. Faroe Petroleum’s good news of the Breagh discovery is a rare exception to this depressing trend. Of course, those who indulge in the practice of short-selling have been making a killing out of such companies in the current environment. This is the practice of selling a financial instrument (basically shares) that the seller does not own at the time of the sale.

Short-selling is done with the intent of later purchasing the instrument at a lower price. Short-sellers profit from an expected decline in the share price. Ergo, they cash in on failure and I think that is morally wrong and should be banned under the planned clean-up of the British financial system.

My partner in life summed up the financial mess very succinctly the other day.

She said: “I think the whole concept of shares has been undermined by selfish, almost criminal, types trying to make a quick buck casino-style, and hang the consequences. I suspect that what is going on at the moment is their last, desperate grasping of the chance at some money, any money, anyhow, before there will have to be a substantial rewriting of the rules.”

While I’m banging on about the financial system – most of which is a deep mystery to me (and I suspect to many responsible for its implementation) – there’s another practice that needs stamping on. It’s called “cash box” and came to my attention because of Tullow Oil’s successful 10% rights issue announced on January 21. Basically, a “cash-box issue” is a means whereby a company can push ahead without the need to offer existing shareholders rights of first refusal. UK rules allow companies to raise up to 5% of their share capital in cash without recourse to giving all shareholders formal rights to buy new shares, but that limit is raised to 10% if the money is used for an “acquisition”.

Except in this case, Tullow is not making an acquisition as such; rather, the £400million raised will be used to help fund its part of the huge Jubilee oilfield development offshore Ghana. That means buying/hiring and installing everything needed to get the oil.

According to a source quoted by the Financial Times, “Bankers are increasingly advising companies to do this to get round the restrictions on pre-emption and speed up capital raisings. There is a growing feeling of disquiet”.

Moreover, cash box was branded a “wheeze”.

And so it is. It short-changes shareholders of their rights, and that is surely unlawful. If that is indeed so, then the cash-box ploy must be dealt with in no uncertain manner as part of the clean-up of the discredited British financial system.

One can’t blame companies such as Tullow for taking advantage of what is available. After all, their world has become massively more difficult thanks to the likes of Fred Goodwin – who, by the way, should voluntarily surrender his knighthood – assuming he has any shred of decency left.

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