The Scottish Government has launched an oil and gas industry strategy which targets higher long-term recovery rates, increased exports and £30billion annual sales by 2020.
There’s nothing wrong with any of that nor, indeed, is there anything particularly new in it. If there is one industry which has learned how to innovate and export, it is North Sea oil and gas.
The turning point in many respects came in the late 1990s when the oil price plummeted to around $10 a barrel. For a short period, it seemed as if the writing was on the wall for the North Sea. There would have been precious little new investment if the price had stayed there for long.
Of course, it didn’t. By the turn of the century it was heading fairly steadily north and the rest is history. But this period of price collapse had a cathartic effect on the North Sea industry. By chance, I was around to witness it from various Ministerial roles and hopefully provide a helping hand.
One of the immediate consequences was the formation of Oil & Gas Industry Task Force in 1998 which morphed into PILOT two years later. These bodies brought the oil companies together with Government in a shared endeavour – to prolong the life of the North Sea industry, as well as the companies and jobs that depended on it. A lot of mind-sets had to be shunted to one side.
At that time, it was possibly unique and certainly counter-cultural for the oil majors to join in a private-public partnership of this sort. As I recall, the only one that decided to have nothing to do with PILOT was Exxon. The rest bit the bullet – and then did much more than that.
Having taken the decision to participate in PILOT, they took it very seriously indeed, committing top class people who contributed an incredible amount of energy and expertise to the collective effort. The work-streams created real strategies which rapidly delivered tangible results in areas like cost-cutting, freeing up fallow fields and exporting.
I have been involved in quite a few government and quasi-government boards but nothing that remotely resembled PILOT in terms of dynamism and delivery. Quite simply, with the calibre of people involved, there was no tolerance of talking-shops. They were investing their time in outcomes, not platitudes and box-ticking.
As the oil price rose and normal North Sea service resumed, there was less ostensible need for PILOT. But its legacies lived on. All of the excellent initiatives implemented by the former Department of Trade & Industry (DTI) to free up undeveloped North Sea assets, and get them into the hands of smaller, nimbler companies utilising enhanced technology, flowed from this period.
So too did the drive to turn North Sea supply chain companies into exporters. This has been an extraordinary success story. With very few exceptions, the companies which had been created to service and supply the North Sea industry had never thought of applying their expertise to other markets. They were quite comfortable where they were.
Suddenly, in the late 1990s, however, the choice became stark – export or die. With a lot of help from UKTI and other agencies, they responded to the challenge in their hundreds. Then having discovered the big wide world, they found that they liked it and have been doing it ever since – now in over 100 countries.
The Oil and Gas Leadership Group, which has produced this new report, seems a bit like PILOT re-born – though happily, not in the same circumstances of adversity which provided the original impetus. The oil price will stay high and the 27th North Sea licensing round has attracted healthy interest. There are more players in the market and decline, though inevitable, can be managed.
But whatever the immediate circumstances, it can only be a good thing if governments and their agencies have a direct link to the industry in order to establish consensus on what needs to be done to extend the life of a flourishing North Sea. I hope that the Leadership Group, or something like it, will have a life beyond this report.
If so, I would strongly commend the same strategy that made a success of PILOT. Nobody was interested in speeches or political posturing. The approach has to be entirely practical with measurable outcomes if the private sector is going to buy into it whole-heartedly. There must then be a willingness on the part of Government at all levels to respond flexibly and contribute to an atmosphere of mutual trust – which, among other things, means no more surprise tax hikes.
A very good example of how the whole North Sea industry is stronger when government and private sector work together can be seen in the dispute with the European Commission over offshore health and safety. A united front is making progress and now drawing in support from Norway.
Indeed the Norwegians have made it very clear . . . including the trade unions.
Their view and solidarity mirrors the UK response.
In a nutshell, the collective core message boils down to: “Back-off Brussels, you lack the competence and why risk compromising the world’s offshore safety benchmarks in such a manner.”
The other really important point is that the North Sea industry should not become a political football in the ongoing constitutional debate. Its success to this point has been achieved and maintained on a UK basis and the expertise which is relied upon does not respect internal borders.
Whatever happens in the future, it is important that politics does not get in the way of partnership and everyone with the North Sea industry at heart continues to work as closely within and between UK and Scottish dimensions as has always been the case.
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