NOF Energy association warns of black hole for UK fabrication jobs unless Wood’s new oil and gas watchdog ‘shows its teeth’ over supply chain contracts

NOF Energy The outgoing Chairman of NOF Energy – which represents major players in the UK offshore services and fabrication sector – has warned the UK Government that the sector is ‘stumbling towards black hole from which it may never recover’.

Dennis Clark OBE – who is also Chairman of the Offshore Group Newcastle Ltd – has welcomed the Wood Group review and recommendations, now adopted by the UK Government, on improving productivity and efficiency in North Sea oil and gas exploration projects.

But Clark has issued a clear warning that – while welcome – these measures do not go far enough because the Wood Review did not include consideration of the UK oil and gas services, fabrication and supply chain.

With more than members, NOF Energy is a business development organisation working on behalf of companies within the oil, gas, nuclear and offshore renewables sectors.

In a letter to UK Energy Secretary Ed Davey, Clark warned:We are starting to see some of the major oil and gas producers turning away from Britain and investing in other parts of the world. Yet there are still considerable oil and gas reserves to be exploited in the UK and they have a vital part to play in Britain’s prosperity.

“The energy industry and the government must together do everything they reasonably can to ensure that the UK remains an attractive place for oil and gas production.

“The Wood report’s fundamental recommendation is that a new regulator should be established. I  wholeheartedly endorse that proposal but I fear that there will be no tangible positive impact unless the government ensures that a new regulator has real powers to regulate properly and to bring about the many changes that are required to safeguard Britain’s interests. Accordingly;

 

  • The proposed regulator must be more than just a regulator. It must have teeth and a corporate structure rather than a government department structure.
  • The new regulator must have full powers of enforcement and use them when necessary.
  • The regulator should formulate proposals for a fiscal regime that incentivises operators in the UKCS and negotiate them with HMT on behalf of the industry.
  • Collaboration is a state of mind and a product of a positive corporate culture.
  • The extensive use of contract labour is a fundamental problem in our industry.
  • The supply chain must feature in the review.
  • Tendering processes within the supply chain need to be full, fair and transparent in order to improve the opportunities for UK manufacturers.

To affect transformation across the UKCS, a new regulator must be armed with the tools to enforce arbitration and collaboration. Its remit should cover the industry’s relationship with HM Treasury because the tax regime will have a major bearing on Britain’s competitiveness.

It is generally accepted throughout the industry that temporary staffing is a major problem, but the industry has shown itself incapable of weaning itself off its addiction to transient labour. The personal commitment of workers to the projects or companies they represent is at an all-time low and is deeply damaging to the spirit of collaboration or long term achievement.

My view may be an unpopular one, but it is time to close the loopholes which make contract working so attractive.

Finally, the new regulator’s remit must include the supply chain. The government has repeatedly said it wants to support the fabricators and this is the opportunity to do so. Sir Ian’s report does not include the supply chain under its terms of reference, but it is my firm belief that a powerful new regulator should take a holistic approach to the UKCS and insert itself into the procurement process, hold operators to account for their decisions and promote the development of our infrastructure.

Like ministers, the regulator should be flying the flag and making the case for British industry.

UK fabricators are running out of work as major contracts are persistently placed in South Korea and the Middle East. With the current cycle of UKCS construction projects drawing to an end and the next round of projects mainly postponed, the British fabrication sector is stumbling towards a black hole from which it may never emerge.

We can expect some empty yards later this year and plummeting employment as a consequence.

By way of emphasis, Deloitte confirmed on 29 January that exploration on the UKCS fell 28% last year. You may have seen that OGN has just been awarded a small contract by Conoco Phillips which will help us to cement our relationships with them for the future. However, this is a very modest project and, in the short term, will secure fewer than 100 jobs at our yard.

Much of the £13 billion investment in UK oil and gas last year was spent overseas and of little direct benefit to the UK and its fabricators. Prospects for 2014 look bleak.

Five of the main construction projects scheduled to commence this year have already been delayed or cancelled. These include: Talisman Sinopec Auk redevelopment; Shell Gannet project; Statoil Bressay, the contract for which was incidentally already placed in South Korea; Chevron Rosebank, a large FPSO due to be built in Korea; and Apache Beryl West Flank.”

Commenting on the publication of the Wood Review, Uisdean Vass, a Partner at law firm Bond Dickinson said: “If implemented fully,  Sir Ian`s recommendations will have a major  effect on the industry. The regulatory changes, for example, which would see the creation of a more powerful Regulator with access to much more information will be a huge change from the relative light touch of the past.

“The fact that the industry appears to be supportive of the move is certainly an encouraging sign for long-term success.

North Sea oil and gas production since 1970

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