UK Oil and Gas ‘old guard’ told: You’ve got just 24 months to save the British N. Sea industry

Jurassic-rig2Oil industry chiefs meeting for their annual conference in Aberdeen have been welcomed by a blunt warning about the future of their industry;

“You’ve got just 24 months to save the N. Sea’ is the main conclusion in a hard-hitting ‘pulls no punches’ report from PWC consultants.

The report – ‘Sea Change Needed if N. Sea Oil and Gas industry is to Secure a Productive Future’ – sets out some radical solutions needed over the next two years, including: –

  • A new, innovative leadership style required to change behaviours and set blueprint for future success, and a
  • ‘Super joint venture vehicle’ key to consolidating smaller and fragmented assets under one operator – of the sort announced earlier today by BP in Norway.

The report said: “The North Sea basin has a two-year transformation window in which to ensure a strong, productive and profitable future for the sector.

“But in order to achieve this, a robust roadmap is needed to transform the basin, meet short term energy needs and bridge the gap to a lower carbon future – and this will need drive and direction from Government, the Oil and Gas Authority (OGA) and industry”.

The report identified a number of other innovative solutions that could help create the ‘seismic shift’ needed to break any residual inertia and re-invigorate the N. Sea sector. These include:

  • Creating a super joint venture vehicle, consolidating smaller and fragmented assets under one sole operator. This investment vehicle could drive greater cost-efficiencies, boost bargaining power with suppliers, and enable a more co-ordinated approach to decommissioning of the asset pool.
  • Consortium financing with collective counterparty risk, focussing on area based outcomes rather than asset based ones. With many reflecting that traditional providers of capital had retreated as oil prices plummeted, creating inertia in funding new projects and deals, this could break the gridlock.
  • A Government backed decommissioning fund or equity-backed guarantee scheme to help smaller companies cover their letter of credit requirements. With Government assuming a degree of risk with the majors, independents can focus on squeezing the last drops of oil and gas from the basin.

Alison Baker, PwC’s UK and EMEA oil and gas leader, explained: “Part of the solution is for government agendas across Treasury, DECC and the OGA to be much better aligned to the needs of the whole industry, from super majors to smaller oil field services firms.

“The majority of respondents also want government to take a lesson from Norway and Saudi Arabia and be bold in setting out their blueprint for the future.

“This must incorporate onshore activity as well as defining how the North Sea basin will evolve in the short to medium term and, crucially, how the end game – and subsequent transition to a low carbon landscape – will be managed.

Deirdre Michie, Chief Executive, Oil and Gas UK
Deirdre Michie, Chief Executive, Oil and Gas UK

“Historically, large operators have exported their best talent to frontier basins, leaving solid and stable leaders to man the helm across mature assets – a move that has potentially stifled innovation. The growth of independents, bringing new expertise and investment, has also fostered fragmentation across the basin.

“Our respondents recognised that a change of guard at the top is essential if the industry is to successfully disrupt its ‘we’ve always done it this way’ mentality and become a force for innovation and re-invention while demonstrating entrepreneurial and forward-thinking leadership.”

And Kevin Reynard, PwC Office Senior Partner in Aberdeen, added: “The North Sea still has a strong couple of decades ahead of it but the decisions to sustain it in that period need to be taken quickly. It’s vital that governments and industry come together and agree a blueprint for action.

“No one company standing alone can weather this but if all interested parties join forces to address the issues then there is hope for the North Sea. Government and industry have started to come together but this can be built on for the future.”

 

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COMMENT: Scottish Energy News 

Like the long-awaited Aberdeen by-pass, the arrival in the city of the annual Oil and Gas UK trade conference, which opens tomorrow – instead of being held in London – may already be too late, with more than 10,000 directly-employed jobs lost in the region and more than 110,000 jobs lost over the past two years.

You only need to read the dire warnings from independent experts such as PWC consultants and the Bank of Scotland to realise ‘Something Must Be Done’.

Certainly, the ability of Oil and Gas UK to dominate the industrial and political landscape in the sector has visibly declined since the government implemented the Collaboration Code in the Energy Act, which formally established the Oil and Gas Authority (also in Aberdeen).

SEN logo Dec 2015Under the Collaboration Code, the OGA has the power to ‘knock-heads together’ (if need be) but is prudently pursuing a collaborative approach with the industry to Maximise Economic Recovery.

The OGA has set up a number of thematic working groups to increase collaboration and co-operation and to smash bottle-necks to MER. While heavily involving Oil and Gas UK personnel and member companies, these also simultaneously serve to highlight how far off the ball OGUK has become.

Last year, it also had to scurry post haste to Yarmouth after the Norfolk based Southern North Sea focused East of England Energy Group (EEEG) cried ‘foul’ because it (rightly) felt it was not getting a fair crack of the OGUK whip.

Oil and Gas UK then hastily cobbled together a ‘let’s be friends’ collaborative framework with EEEG and also quickly cosied up to Decommissioning North Sea to ‘share common resources’ (a well-known management euphimism for ‘duplication’ and ‘too many cooks’)

Meanwhile, the (mostly wind-y) Scottish Renewables trade association nurses the chip on both its shoulders after the UK government took away subsidies and refuses to play nice – or even talk to – other energy sectors.

Scotland is too small, the challenges too big, and time too short for these petty empire-building and jobs-worth protecting fiefdoms to survive.

If ever there was a time, a need, and an opportunity to get Scotland’s energy industries truly sharing and collaborating in the national interest and for the common good – and to learn from the East of England Energy Group (which represents all main sectors, Gas, Oil and Renewables) – it is now with the new Scottish Energy Strategy which the Scottish Energy Minister will formally launch after his summer hols.

There is more than unites the Gas, Oil and Renewable energy sectors than divides them – and the issue of carbon capture and storage is the perfect example of this.

These facts – however inconvenient they may be for some – are already recognised by at least one prominent trade body which represents all main energy sectors.

It’s called the Scottish Energy Association.

 

 

 

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