I don’t chew my fingernails, or at least not since I was a schoolboy. It doesn’t mean that I don’t worry, because I do. I simply torture myself in other ways. However, there are heaps of adults who do chomp away at their nails and, pound to a penny, there’s rather a lot of that happening throughout the upstream oil&gas patch right now, especially in major centres such as Aberdeen, Calgary, Houston and Stavanger, as the screws tighten on the supply chain.
FLIP back to the closing months of 2008 and I was optimistic that Opec’s efforts to cut output to global oil markets would deliver results. But as recession threatens to deepen into depression, it is clear that the Organisation of the Petroleum Exporting Countries faces an increasingly difficult task as it tries to push the price of a barrel back above $60.
One watches the price of Brent several times a day, but just when it seems that it might struggle to $50, wallop, it’s back down to $40 or so.
Little wonder then that the latest set of numbers and thoughts to emanate from Oil & Gas UK border on the gloomy. And little wonder that suppliers are being called in by certain operators and being asked to reduce their prices.
Of course, that is bound to provoke reactions as diverse as mute acceptance to “I’ll see you in court”.
The most talked about price chopping in Aberdeen is BP’s determination to get supply-chain prices back to 2004 levels. Note, 2004 and not late-1990s deep-crisis prices when the hatches were being banged shut big time to ride out that particular storm.
Now, I don’t know any of the detail, and I don’t suppose BP would tell me anyway.
But I do wonder whether its super-smart management has really thought this through creatively.
After all, in his keynote address to the CERAWeek energy conference in Houston just last month, BP CEO Tony Hayward said: “The future is not cancelled. I don’t believe that anything about medium term and long term has changed.”
Interestingly, Jeroen Van der Veer, Shell’s outgoing CEO, paraphrased Shakespeare’s Hamlet to say, “The question is to invest or not to invest”.
And to not invest, he said, could exacerbate the present price cycle.
Naturally, their long-term optimism was tempered by near-term angst as high-cost provinces like the North Sea get close to bordering on the uneconomic.
But Hayward and Van der Veer were perfectly clear not even four weeks ago that the industry must invest in exploration, development and production to be prepared for the inevitable surge in demand.
ExxonMobil senior vice-president Mike Dolan was reported as saying, “The demand for energy can only grow”, and that Exxon would keep on investing.
Their pronouncements were reinforced by others at CERAWeek who basically said investment must not be slowed by the present economic situation, particularly in those sectors that will do most for the recovery. That means technology, people, alternative fuels, increased energy efficiency and new sources of oil&gas. Oh, and keeping cash cows healthy.
Much the same was being said at the Energy Institute’s 2009 IP Week, and I guess the core message from London is best summed up by a warning issued by the International Energy Agency’s director, Nobuo Tanaka.
He said: “Currently, the demand is very low due to the very bad economic situation, but when the economy starts growing, recovery comes again in 2010 and then onward. We may have another serious supply crunch if capital investment is not coming.”
However, the hard cheese for the North Sea in Tanaka’s message was that, if Opec is aiming at a rapid price increase by cutting supply – which it is – maybe it would not be a good thing for the global economic recovery.
“The lower prices help the recovery,” he said.
But that doesn’t help almost the last healthy industry left in Britain – the North Sea.
So where does that leave BP in its quest to drive down supply-chain costs in Aberdeen?
Well, if it hasn’t already been thought about and, more importantly, factored in, and I were North Sea MD Bernard Looney, I would oil-price link the reductions demanded.
Basically what I’m suggesting is that, say a 25% reduction is being demanded, then BP (and others) should say it applies only for so long as the oil price remains below, say, $55/60 per barrel and that, if it stays above that level for perhaps 90/100 days minimum, then suppliers should share in that recovery by automatically enhanced rates.
None of the gain-sharing fancy formula nonsense of the CRINE era, you understand, just a straight partial/full restoration of rates.
That way, I reckon many current suppliers – small, medium and large – might feel as if they are being treated in an above-board manner.
By the same token, relationships where the supply chain is answerable to main contractors who manage assets on behalf of operators could be similarly handled.
This doesn’t require a taskforce approach – read Dick Winchester’s column on that – just commonsense.
LAST month’s ditching of a North Sea helicopter is a timely reminder of just how dangerous the North Sea remains, even if it is a darned sight safer than a number of other British industry sectors that one can call to mind.
Just days before the Bond aircraft made a controlled sea crash landing in the ETAP field, news broke that Heli-One, a subsidiary of Canadian firm CHC Helicopter Corporation, was planning job cuts among maintenance personnel.
CHC said it had instigated the process in response to the industry-wide downturn in activity and that there would be a maintenance-staff cull.
It happens that Heli-One provides helicopter support to customers throughout the world, with services including engine and component repairs and inspections.
However, given the crash – and therefore the microscope turned on helicopter maintenance – plus the bullish pronouncements by Hayward, Van der Veer and Tanaka, is this a wise decision by CHC? I’m not so sure.