In a break from our normal format, Energy’s editor met with former energy minister Charles Hendry to discuss the core objectives of a new Parliamentary work group set up to foster greater local content in UK North Sea projects and to better capitalise on global opportunities.
This is about speaking with chairmen/boards and encouraging their buy-in to UK PLC. There cannot be compulsion; that’s illegal under EU law. And, late last month the group of MPs gathered in Aberdeen for the first time.
Hendry was booted out of office for reasons that no one seems to want to discuss, including rumours that he was perceived to be too close to the industry, something that might rile the Treasury.
However, he is back in his element, thanks to energy secretary Ed Davey asking him to form the cross-party grouping that he now chairs and which includes, from a north-east perspective, weel kent names like Malcolm Bruce, Frank Doran and Bob Smith.
“This is a group that Ed Davey wanted set up and he asked me to chair it,” Hendry told Energy.
“He knew I got enormous enjoyment from coming to Aberdeen and knew that I had engaged closely with the industry over a long period of time.
“I still kept coming to Aberdeen even after I stopped being a minister. I think Ed Davey realised that I was somebody who cares a lot about the sector and is keen to push forward with it.”
Hendry told Energy that of the seven he was the only one without a significant constituency interest in manufacturing for or providing services to the oil and gas sector.
During his time holding the energy brief, it was clear to the North Sea industry that he indeed did care about the sector and worked hard to promote its interests doubtless flying in the face of the greenwash rhetoric of the current Government. Moreover, Hendry dared to raise the issue of local content in an industry that seemed bent on placing large construction contracts especially, overseas.
But why? Surely that was pointless given EU rules and so-forth?
“It was because people kept saying there was nothing that one could do about it. But I felt one could. Yes there’s this thing that under EU rules you can’t stipulate local content . . . can’t give advantage to UK content. But I thought that what I could at least do was to show that local content does matter.
“And so, if there were contracts that I thought might not be giving UK companies a fair chance I’d ring up the (oil company) chairman and ask: “What are you doing about this?”
“In general they preferred to have a conversation with a minister when they had something good to say rather than trying to justify something that wasn’t going to the minister.
“The chairman of one company said to me: ‘I didn’t know it mattered to the UK government until now’.
But did it really matter? After all, there’s so much rhetoric about a British economy that is so wed to services and the City that no one really cares much about or understands the need for manufacturing and engineering . . . making things to sell.
It happens that many of the Hendry engagements with captains of the North Sea took place during the run-up to the current Indian Summer of large projects . . . Clair Phase II, Laggan-Tormore, Mariner-Bressay and others.
This is big stuff with a lot of engineering and construction attached yet practically all the really heavy work has gone overseas especially to the Far East.
Hendry defended this by saying that the UK didn’t, for example, have the capability to build production ships. The reason for that, of course, is that we threw ship-building away and cannot even build drilling rigs let alone FPSOs.
As for what work has been won by “British” companies, he defended the issue of ownership saying that what mattered was the jobs created . . . the trickle-down effect into the local economy.
Hendry said it was particularly important for challenged areas such as the English north-east; Tyneside, for example, where OGN secured valuable work from Apache on the Forties re-development and created 1,000 or so jobs albeit not for long.
“The economic gain in difficult parts of the country can be staggeringly good. It does matter that we win the work and create the jobs (regardless of ownership) and that’s why we used to make the phone-calls,” he said.
“But once you’re a former minister you don’t really have much of a voice on those issues. But with a group of us, the companies that we talk with recognise that local content is something that matters, whichever government is in power and whatever the outcome of the referendum in Scotland turns out to be.
“The response that we’ve been getting from the companies indicates that they are taking this seriously. They have been keen to talk with and be open to us.”
At the Aberdeen session Hendry said the group met with a cross-section of leaders including Terry Savage of Global Energy Group who chairs the fabricators grouping at Oil & Gas UK.
“We also had written submissions in advance,” said Hendry. “I’m not going to name individual companies though they were mostly from the operators; talking about their experiences when placing contracts in the UK, where contracts have gone overseas and why they didn’t give UK companies a greater chance to pitch.”
The primary focus for Hendry, Doran Smith et al is green and brownfield projects.
“It’s mostly on the Capex side; particularly looking at it in relation to the new field allowances which the government is putting in place and saying that the taxpayer is investing in this or that project, therefore the taxpayer should have an interest in what comes out of it . . . jobs at fabrication yards, how much subsea work will come to the UK, and so-forth.”
Hendry said it was particularly important to discover what needs to be done to improve the chance of UK-domiciled businesses securing contracts that offer domestic opportunities.
“What can we do to encourage them?. We can’t make up for past decisions but we need to understand why they’ve made those decisions.
“What do we need to do to ensure that companies that are pitching are doing it in a way that works well in terms of competition … not just on price but on the detail that is put into it.
“How do we ensure that they’re working at the same level as thirsty (competitor) fabricators and suppliers overseas.
“It’s more than just persuasion. They’re in the spotlight. They can expect us to ask searching questions; to drill down into the detail.
“We want to be comforted that British companies are getting every chance to pitch and be taken seriously.”
One of the problems with the UK supply chain is that a large slice of it is in fact foreign-owned. But while Energy sees this as a major issue Hendry does not.
“Ultimately if you have a job in Newcastle or a job in Fife and you’re ownership is overseas, does that make it any less of a job than if it happened to be a British-owned company,” said Hendry.
“I’m concerned about getting jobs in the UK. And therefore if they’re (foreign-owned firms) doing the work and have a good track record and they’re professional companies, I’m happy to see them getting the work. This (initiative) isn’t about the ownership of those companies; it’s about the jobs.”
But how strong is the UK capability?
According to Hendry it depends on which part of the industry one looks at.
“For example we’re incredibly strong with nearly half of global subsea work coming back to Scotland,” he said.
Notwithstanding such issues, Hendry said what really mattered was that his group of MPs above all else influence the operators so that they really do give UK companies a decent crack at pitching for and winning contracts.
“The biggest challenge lies fundamentally with the fabricators,” said Hendry.
“We have seen a big uplift in terms of the activity that’s going on. But then they (the contractors) all know that when a particular contract ends they need something to replace it.
“And the work they would be bidding is likely to be in the hundreds of millions (of dollars value) and tens of millions at least in order to sustain employment over long-term, or else their future is questionable.
“But then what happens when the current buzz of activity subsides?,” asked Hendry.
“That’s why we need to be pitching in to the companies now in the early stages of looking at project contracts … making sure that they understand at that early stage that government cares about where those contracts go.
“It may not be able to say that you must by law use UK contractors but it can make sure that they (the operators) are absolutely aware that we expect them to look at them; that we can question them; that we can do it in public or private; that we can require them to show us their workings.
“We want to understand how they have whittled down a long list to a short list. Sometimes there aren’t any British companies in those short-lists.
“The question then becomes why? How do we make sure they’re giving British companies a fair chance and if they think British companies haven’t got the skills, scale or experience that is expected, how do we make sure that they achieve that. However, that’s a longer-term process.”
Hendry said there appeared to be a genuine willingness among operators …partly motivated by self-interest … to use British companies.
In any case why place an order overseas with all the issues that go with when placing a contract with a company in the UK supply chain can eliminate such issues at a stroke?
Unfortunately there are good reasons why it is not possible to place construction contracts in the UK. We don’t build floating production units, we don’t build drilling rigs, and there is a lot else that we can’t do in Britain.
Hendry said too that it was important to think and act positive and that more big contracts can once again be executed in the UK thanks to success stories like Global Energy Group on the Cromarty Firth and BiFab in Fife.
“Look at Global Energy Group. What the MacGregor family has done is a terrific success story. More work can be done there than has been the case for a significant time,” he said.
“So we do have companies that have invested in capacity and we can build on that.
“For example Highlands Farbricators failed at Nigg whereas the MacGregors are succeeding.
“It took somebody with a different vision and different attitude to what the future might hold; also recognising that apart from continuing opportunities in oil and gas there is also the potential of offshore wind longer term.
“I think there’s a new entrepreneurial spirit afoot.
“Of course, that does bring its own challenges because it means that there are new companies that don’t necessarily have the track record that oil companies are looking for.
Nonetheless there’s much that we’ve not been doing that we should be able to do, and that includes some of the modules for FPSOs (production ships).
“That means there is a need to focus on getting part of projects rather than whole projects and then try to expand from there.
“With the renewed confidence that there is in the UK offshore sector, we’re obviously seeing much higher levels of investment coming forward. That’s encouraging and we can now see a future for an industry that stretches out 40 years ahead rather than just 10.”
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