More job cuts ahead in 2016 – but ‘MER collaboration will help improve industry efficiency’ – says Shell chief

Paul Goodfellow
Paul Goodfellow

EXCLUSIVE by Scottish Energy News

Paul Goodfellow, Upstream Director for Shell UK has warned that there will be more job losses to come this year in the North Sea as a result of the crude oil price slump and reductions in investment spending.

But he is optimistic that the industry is already taking effective action to match expenditure with income and said the sector has the ‘fighting spirit’ to come back.

In his presentation at the ‘DELIVERING MER – The Issues’ conference, he also welcomed the MER Strategy and the Collaboration Code as being an opportunity for the industry to ask itself ‘how are we going to build the future?’

“But in itself, MER will not get us out of the situation we are in today,” he warned.

“The response from the North Sea oil and gas industry has to be reflect the complexities and key issues we’re facing, such as a ‘lower for longer’ crude oil price.

“This has resulted in very depressed revenues – 43% of fields are presently operating at a loss and capital expenditure has fallen too, from around $15 billion in 2014 to a projected $9 billion for 2016.

“But as an industry, we are already seeing improvements in efficiency coming through. The industry has the fighting spirit to make difficult decisions to reduce costs – including the very difficult decisions on job losses, and, regrettably, we’ll see more of that during 2016.

“We’re still not competitive globally in the North Sea and we certainly need to do more to cope with ‘lower for longer’.

“But I’m confident that the industry can bring back investment into the UKCS – we need to aim to be a highly-competitive, low-tax base field, so that we can all benefit when <crude> prices recover.”

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He said costs had peaked in 2013 – just as crude oil was about to peak at $110-barrel. Costs have fallen – but not quickly enough, and added;

“So we can use MER to facilitate rapid exchange and sharing of best-practices and technologies to maximise the positive response from the industry.

“We have already benefitted from this approach in Shell. We inquired along our supply chain for information on a valve-storage issue we faced recently, and within 48 hours a vendor had contacted us with a specific solution.

“We have to be innovative about how we collaborate in future under MER / Collaboration Code. We can, and we have to, learn from other industries – such as automotive and aviation – where they collaborate closely with the supply chains.

“We have to un-learn some of the things we may have learned in the past. It’s not about getting one up on our rivals. And we must move away from the traditional, hierarchical way of doing things in future.

“It is about building <mutual> trust. We’ll get better together by sharing best practice – and we are starting to see industry collaborate more.

“For example, as an industry, we need to understand why well-drilling costs have increased by so much. In Shell, we have a ‘50% well-cost challenge’ to improve efficiency in this area.

“Some drilling operators are now opening up more and putting their drill-plans out for peer review and already we’re finding that this has the potential to cut drill-costs by 15-20% – and I know other operators are looking at this kind of collaboration.”

In a well-received speech, Goodfellow concluded: “MER is creating a system that enables industry to work more effectively and collaboratively. MER is a positive step, but we in industry have to do more to transform the UKCS into a competitive basin.

“There is too much at stake for MER not to work.”

Meanwhile, BP’s two Clair Ridge platforms are nearing completion and will start producing the first of an estimated 640 million barrels of oil towards the end of next year. The Clair Ridge project West of Shetland is part of an ongoing £10 billion investment programme in the UK North Sea by BP.

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