The oil price slump grinds on and the North Sea remains in crisis, but Wood Group’s chief executive Bob Keiller is clear that people, the UK offshore industry’s primary resource, must still be valued.
During last month’s UK Oil & Gas roadshow ahead of the budget, Keiller made it clear that talk about “we’re going to have to get rid of a few people” was unacceptable.
“Unless you’re in the Mafia you don’t get rid of people,” he warned an Aberdeen audience.
“You may take away their jobs, you may take away their self-esteem, their dignity, their reason for getting up in the morning; there will still be a person there; there will still be a family behind them.
“The impact of job losses shouldn’t be underestimated.”
Keiller said job losses were inevitable but that, despite the “scary headlines”, no one could really know how many or in what disciplines.
“Clearly as an industry we can’t sustain people at work if we don’t have activity for them,” he admitted. “So we need to do everything we can to stimulate continued investment (in the North Sea).
“But what about those people who are displaced, who no longer have a job in the industry? What for them? It is said that having low energy prices may be bad for the oil & gas sector, but looking more broadly, that’s where there is probably a net positive effect.
“It could be argued that we’ll move job opportunities elsewhere so people can move to different sectors. Locally that probably means fewer options.”
Selecting decommissioning as a possible option for some, Keiller said that, given forecast expenditure of some £50billion on UKCS infrastructure removal coupled with the fact that “most of that decommissioning activity will be heavily subsidised by the UK taxpayer”, then jobs generated should be in Britain.
“Why should the UK taxpayer provide what would effectively be subsidies but then place jobs in Norway, Holland, or Denmark, or France, or somewhere else?” he challenged.
It was suggested that onshore shale might in time generate many jobs, but not this year.
What about some of those cast out of work setting up businesses of their own? Keiller said Aberdeen had a newly opened “business elevator facility” to help.
“Probably many don’t realise that there are nearly 3,000 people a year in the Aberdeen and Aberdeenshire area alone who think of starting up their own business. And some 1,200 of those actually get past the start line.
“But what can we do to prevent job losses; perhaps there are some options that we’ve not been thinking about.
“If we can harness our collective creativity, as we have done with many challenges in the past, then perhaps there are some options that we’ve not been thinking about.
“As an industry we’ve overcome some tremendous hurdles in our time, whether political, economic; we’ve worked all over the world; we’ve tackled some of the most difficult situations, technical challenges; we’ve done all that. We can put our minds to it.”
Keiller offered thoughts in four key areas: messaging, redundancies, behaviours and managing costs.
Messaging:
Keiller said the industry had a choice, either continue with beating itself up or seek a bit more balance into the situation.
“The problem I’ve got is that we keep on saying things like the UK oil industry is dying; if we keep telling ourselves that it will become the undisputed truth.
“Stalin once said one death was a tragedy but that one million was a statistic. Job losses can cut the same way. It’s a chilling statistic. If we talk about job losses in such an easy way that they become front page, and then back page news and then they become no news at all, it makes it easy for everybody to say, well I’m just going to shed jobs because everybody else is. I’ll just join the herd.
“We can’t allow that to happen. We need to provide a better message. If we’re going to attract in the next five to 10 years new talent and skills to join our industry, we’re not going to do it if we’ve talked ourselves into the bottom of a deep, black hole.
“There is benefit for us in talking up the industry, but with a sense of balance.”
Keiller pointed out that the latest figures published by Oil & Gas UK suggest that at $50 oil, two thirds of UKCS production . . . 80% of UK assets . . . were still viable.
“We still have many years ahead of us here in the UK and to do that we’re going to need people and we’re going to need support and we’re going to need to create different headlines. It’s up to us. Hiring people again and wondering where all the talent’s going to come from.”
Firing people
Keiller stated that redundancy should be the last option that any company should reach for.
Yes, budgets had to be trimmed, costs had to be cut, prices charged to clients had to come down; so too could third party spend and there could be other ideas. But with people, before firing them, options like voluntary early retirement, sabbaticals, reduced time working and job sharing should be examined.
“All of these can help us avoid having to go for that final I’m sorry but there’s no option, you’re going to lose your job,” said Keiller. “Let’s keep the P45 at the end of the list, if we can.”
Behaviours
During low oil prices peoples’ behaviours change; often for the better. It can create an opportunity to simplify things.
Keiller: “We can strip out unnecessary bureaucracy and man-for-man marking and overlaps and stuff like that. We can become more efficient and as we do so there is an opportunity for us to capture those good behaviours and somehow instil them into the industry and keep them for the medium to long-term.
“Of course, peoples’ behaviours can also deteriorate and we can start damaging each other as well.
“If, for instance, we stop hiring apprentices, graduates and trainees we all know that will come back and bite us in the long term.
“Perhaps now we can collectively agree that we’re not going to do that. We’re going to keep hiring apprentices, trainees, graduates. They may be fewer in number, but we need to keep doing it.
“But this should be built around collaboration . . . doing it together. There’s no point in doing it if somebody says, ‘Well I’m not going to bother doing it. I’m not going to take my share in it.’”
He said there was no question about it, working together is in any case key to a better North Sea future.
“We’ve proven time and again that when we really want to work together we can.”
Managing costs
Keiller said it really was time that the North Sea got its costs house in order and not to let this aspect of the business slide again, for that is what has happened in recent years.
“Think of all the things that we have done in the past that have increased the costs of our operations.
“This is a time for us to think about those things and not to allow them to happen again; to stop us reinflating the costs balloon.”
This included companies stealing talent from one another instead of thinking more creatively and coming up with some other arrangement that could deliver mutual advantage, yet cost less.
“Instead of doing what we’ve done in the past, which was, ‘I’ll poach them for double the salary and I’ll drive up everyone’s costs, and everyone’s expectation. Maybe you’ll allow me to hire them out to you for a modest mark-up.’
“In the past, when we were looking for resources, we would wait until somebody was trained and we would poach them. I’m not claiming any moral high ground because my company has done exactly the same as other companies.
“The industry basically made training pointless. Perhaps we should agree that’s not very good practice.”
He suggested too that limited company one-man band contractors was another area where more creative approaches had to be applied in order to bring this side of the North Sea business machine under better control. But this had to be handled with care as “the downsides probably outweigh the benefits of having limited company contractors in business”.
“If we choose to we could prevent that from happening again. We could change the rules; change the game. We could do it differently, if we want to, but it’s up to us.”
Keiller had a warning for client companies, meaning operating oil companies.
“When I see my customers cutting the base salaries of their senior managers, then I’ll know we’re beginning to take cost reduction seriously.”
Using helium-filled balloons to drive his point home, Keiller said: “The best way to take costs out of our supply chain is to let the helium out of the balloons all the way down; but it starts at the top. If we can reduce the pressure at the top then we can do the same down the chain as well.
“So, for example, when we’re hiring new graduates into this industry, why should we pay sometimes 100% more than they pay in other sectors?
“Its got nothing to do with supply and demand because I know every graduate job we have sometimes has 100 applicants for it. And yet we still pay much more than if someone gets a job in the construction or financial services or farming or other industries.
“There’s no sense to that at all. Why do we keep on increasing people’s pay year on year when we’re in a cyclical industry? Why don’t we stop and just add a market allowance?
“So when the industry cycles we can reduce or increase that market allowance and keep the base salary levels the same. We could do it if we chose to.
“We have expectations on bonuses that are not the same in other sectors. And what about the perks? Why fly business class? Why have fancy gyms getting built in offices as we speak? As an industry we have to decide whether we really can afford that stuff, or not.”
Keiller had a message regarding standardisation. “We still waste an awful lot of time and energy because everybody has their own version risk assessment, permits to work and we all do different training.”
Summing up he said: “If we put the burden of change on a small number of people in the industry, sure as eggs are eggs, costs will bounce back if conditions recover.
“There needs to be something that covers every part of the industry. If we’re asking the teams offshore to change their work rotas; what of the teams onshore? If we’re asking suppliers to cut their prices, what are we doing to cut our own costs?
“We need to look at this in the round.
“If we cut the costs of this industry in a thousand different ways, we have the chance of being more sustainable and of avoiding the medium to longer-term job losses.”
Keiller said he had spent his career trying things that others had said weren’t possible. And he admitted that a lot of things had failed; however, there had also been successes. It was a case of trying to find a way forward and accepting that not everything was going to work.
“It really comes down to individuals taking action.
“If all you’re doing is simply saying I’m cutting my headcount in response to the reduced order book, or I’m waiting until somebody else tells me what to do, or I’m keeping my head down in the hope this all blows over pretty quickly, then I think you need to take a look at yourselves and see whether there is more you should be doing.
“If we can do that, make the changes, make it more sustainable, along with all the other factors that impact this industry then perhaps, just perhaps, the future of the industry can be a bit more sunny.”
Recommended for you
