Several years ago I spent time in Australia. Visiting a North Queensland mining community I fell into conversation with an engineer who said something to the effect that one of the biggest problems for the industry Australia-wide was the inability to fight ballooning costs and wage inflation. His further comment was even harder hitting. There were just too many people on the payroll, and too many people very well paid to perform slight-to-unimportant tasks.
I wouldn’t want to draw too many comparisons with Australia and that country’s mining industry, but these comments do appear resonate with what has been happening in Aberdeen for too many years now.
When oil prices began to plunge last summer the situation immediately began to look bleak. With around 40,000 jobs in Aberdeen, or a third of the total employment, dependent on oil and gas it’s not hard to see what effect a slump in the oil price might have on the community. Indeed, we’re seeing the sharp-end of that impact now, eight months on.
We all know that the North Sea oil & gas industry is a technical marvel. The BBC Radio 4 documentary, A Crude History of Britain, was a fine testament to the pioneering spirit of 40 years ago. Fast forward to today and the present slump reminds us that getting oil out of North Sea reserves is expensive because much of it is difficult to extract. Worse, the industry had grown fat on expensive oil over the past few years. Workers who weren’t particularly highly skilled commanded six-figure salaries, an undeniable fact, which does in indeed remind me of the comments made to me by my Australian friend, which I referred to earlier in this article.
By 2014 Aberdeen had the most millionaires per person of any place in Britain, including London, but these high costs means that Aberdeen struggles to cope with cheaper oil more than many other oil rich communities.
With today’s Budget the cries for more tax cuts for the beleaguered North Sea oil and gas industry have become even more frequent and shrill. My response to all this consternation is one of frank annoyance. Is it not time for the North Sea industry to remind itself of its pioneering history, its enterprising spirit and, therefore, respond to this crisis with more dignity and positive energy.
News from the Chancellor that the Petroleum Revenue Tax (PRT) would be “effectively abolished” is of course something that should cheer us all in this industry. We all hope that the UKCS still has a bright future, but there should be a reforming zeal, combined with a commitment to innovation and a tougher minded approach to business that matches this newly announced commitment from Westminster.
Paul Landers is a chief executive level Upstream, Exploration & Production (E&P) International Director with over 30 years Global experience and expertise within various E&P support companies and Oil & Gas companies.