This is the first in a series of short articles about the OSO or, to give it its full title, the Offshore Supplies Office. It was an organisation that, at one time, had a fearsome reputation as it strove to ensure that British industry secured a fair share of the huge opportunities generated by the advent of North Sea oil.
The target was 70% UK content. And some would argue that just such an organisation is needed today as massive investments in renewable energy get under way but where local content is in the order of only 5-10%.
While that name, at least, will be familiar to most veterans of the UKCS, probably few people under 40 will recognise it.
Yet for nearly a quarter of a century from the early-1970s, its presence was always lurking somewhere in the minds of exploration and production (E&P) and large service and supply company managers.
The OSO was born out of the circumstances of the early-1970s, particularly a series of large oil discoveries in the Northern North Sea; the anticipation (soon realised) that oil prices would increase sharply, and a serious deterioration in Britain’s industrial competitiveness, reflected in a weakening currency and balance of payments.
Britain’s domestic offshore oil&gas industry was then already a decade old, the first marine well having been drilled in territorial waters off the coast of Dorset in 1963 – by BP, using a jack-up chartered from George Wimpey.
The First Offshore Licensing Round followed in 1964, with exploration drilling in the UK’s Southern North Sea starting soon after. The first commercial gas discovery was made in 1965, with first production in 1967.
Although there had been a significant UK involvement in the exploration phase, in the initial Southern North Sea development campaign, it was very limited, allowing foreign contractors such as Hereema and Brown & Root to establish commanding market positions.
By 1970, interest had switched to the UK’s northern basin which, after the discovery by BP of the giant Forties field in that year, suddenly became the international oil&gas industry’s “sweet spot”, exciting interest not only from the world’s E&P companies, but also from its drilling, construction and installation contractors.
When BP announced, in 1971, that it was proceeding with a multi-platform development programme for Forties, it became clear that the UK North Sea market for goods and services was soon going to be very large.
Initially, this prompted little response from the Government. However, before long, the fear that these expenditures would, as had happened in the southern basin, largely bypass British firms – bringing no relief to areas such as central Scotland and north-east England, which were struggling to cope with the decline of heavy industry – generated political pressures demanding Government action.
As a result, in May, 1972, the Cabinet Office’s central policy review staff and the Department of Trade & Industry (DTI) jointly commissioned a report from the International Management and Engineering Group of Britain Limited (IMEG) on the potential industrial benefits arising from the exploration and development of the North Sea. The report was received in September and the matter was then seen as one of considerable urgency.
IMEG’s recommendations were interventionist, not protectionist, in nature and aimed to avoid the creation of a high-cost, cosseted sector while addressing the fact that foreign enterprise was becoming so entrenched that significant and rapid Government support was necessary. It concluded that, without such support, the UK content of expenditure would languish at about 30% of the total, against the potential to provide about 70%.
Many IMEG recommendations were never implemented. However, five that were gave birth to the OSO, namely:
The establishment of an organisation dedicated to improving the performance of the British offshore industry – outside the civil service departmental structure but responsible to a minister and accountable for its results. Although IMEG clearly regarded the setting up of an agency within the existing departmental structure as “second best”, the response was the establishment of the OSO within the DTI (until transferred to the new Department of Energy).
The provision by offshore operators and contractors of a confidential quarterly return on their purchases, staff employment and use of contractors and sub-contractors, together with a less detailed forecast of future requirements and an explanation of purchasing and tendering practices.
The incorporation into the licensing system of an assessment as to whether or not an applicant had given British firms “full and fair opportunity” (FFO) to compete for business.
The provision of subsidised credit to British suppliers to counter cheap export credits from overseas suppliers.
The provision of an information and advice service to British suppliers.
This was OSO’s agenda when it “set up shop” in January, 1973. Other responsibilities were subsequently added, including monitoring supplier performance, R&D and exports.
During the crisis years of 1973-75, there were additional, temporary roles, notably the granting of exemption from electricity supply restrictions to key suppliers during the “three-day” week and the provision of concrete platform construction sites.
More next month.
Norman Smith, a former director of the OSO, was honoured by Aberdeen University in 2008 with an honorary doctorate
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