Last month, Oil & Gas UK held its Annual Conference – with the aim of bringing the industry together, to recognise the challenges that face us and to focus on the way ahead.
From the feedback I’ve had over the last week, I know there is now a better understanding of these challenges and how we should go about meeting them.
I said when I opened the conference, that we are a smart, resourceful industry, capable of addressing escalating costs, resolving operational inefficiencies, and mitigating the risk of a fallen oil price. Those couple of days in Aberdeen certainly reinforced my view.
Falling productivity
While demand for our products remains and will continue to remain strong . . . critical for our transport and heating our homes, and giving us a whole host of everyday products . . . our productivity as an industry has fallen rapidly.
The significant drop in oil price has put our efforts to increase efficiency and reduce costs into sharp focus, requiring us to move forward with a real sense of urgency.
While there was at the conference a sense of optimism about what we can achieve together, you don’t need to hear from me that the business environment out there is already tough and is likely to remain that way.
Our challenge now is ensuring that there is a fit for the future industry so that it will continue to support skilled workers and ongoing security of energy supply for the UK. Our challenge is to raise our game in terms of our efficiency so that we can be sustainable in a world of $60 oil.
Over the last 20 years, the price has averaged at $62 per barrel and the forward curve is between $65 and $75, but this is not about predicting oil prices. It is about getting us collectively and co-operatively aligned around a common cause – working together to realise the potential of the UK Continental Shelf by fundamentally improving our efficiency and cost focus.
We have the promise of a bright future, with over 20billion barrels of oil & gas still to play for, and a vibrant supply chain, at home and abroad.
On a global scale we might be a small player in terms of production, but we’re also a world leader. Our technical expertise is unsurpassed and reflected in the quality, the capability and the success story that is our supply chain.
Fiscal incentives
On the first day of the conference, we were delighted to welcome a committed supporter of the industry and its supply chain, First Minister Nicola Sturgeon, who recognised the importance of this key industry today, and for many years to come, and called on the UK Government for fiscal incentives to increase exploration in the North Sea.
She was followed by OGA chief executive Dr Andy Samuel who highlighted the current challenges for the UKCS: the all-time low for exploration and appraisal; the existential crisis on costs, efficiency and margins; and the significant falls predicted in future investment. He also shared his vision for the industry and the OGA, which will publish its MER UK Strategy later this year.
BBC Scotland guest
We were also pleased to be joined by BBC Scotland business and economy editor Douglas Fraser, who quizzed Oil & Gas UK co-chairs, Trevor Garlick of BP and John Pearson, of Amec Foster Wheeler.
Trevor argued that operator companies need to plan better, be open to fresh ideas and innovation, and consult with their suppliers and the workforce, while John highlighted the scale of the cost and efficiency challenge but also the business opportunities that will be presented if industry changes its behaviours.
Narrowing our focus, we later looked specifically at the challenges we face here in Aberdeen. The final session of the conference noted the entrepreneurial spirit of this city, but questioned whether that spirit is in danger of being stifled by poor infrastructure.
This is why we are fully supportive of Aberdeen’s bid for a City Regional Deal which we think will make a key contribution to ensuring the sustainability of this sector.
It’s now critical that we maintain the momentum we have created – a task I believe senior industry leaders are fully aligned with. It was good to hear throughout the two days that progress on this front is now being made:
Total is making its field operations more efficient by encouraging offshore teams to use visualisation techniques to improve planning operations and maintenance and as a result, jobs are being completed up to 12% faster;
Nexen has been able to improve productivity offshore from five-and-a-half hours to over eight hours per shift by encouraging its offshore workforce to contribute to the concept of marginal gains, a technique used previously by the Tour de France winning Sky cycling team;
Myrtle Dawes of Centrica Energy gave examples of how her company is tackling the challenge of being profitable in a low price environment. Working together with both existing and new suppliers as part of its “Hackathon” brainstorming session, Centrica Energy generated 190 ideas from 70 companies that they are now working on.
Most importantly, over the course of the event, we were reminded time and time again that efficient management is also safe management. Howard Harte from the Health & Safety Executive discussed the importance of maintenance and how focus on this cannot be lost in the drive for cost efficiency.
He noted a correlation between rising safety critical maintenance backlog hours and declining production efficiency, which he argued, demonstrated that a safe asset is usually an efficient asset.
In relation to our escalating cost base, we know that as an industry we have been part of the problem; and that we now need to be part of the solution. To succeed with this approach we have to be open to change and avoid doing the same things in the same way and expecting a different outcome.
Learning from mistakes made in the past – we know that our focus cannot merely be on cutting costs but must more fundamentally address the efficiency of the basin.
Focusing on efficiency means that we can ensure we are fit for a sustainable future.
Deirdre Michie is OGUK’s chief executive
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