Energy minister Matthew Hancock has pledged to support the crisis-hit North Sea oil sector prompted by the dramatic fall in global prices. He came under fire in the Commons today from Labour’s Michael Connarty (Linlithgow and East Falkirk) who accused the Government of doing “very little”. The MP called for the reduction in the additional taxation on the fuel and investment tax write-offs.
No matter where the oil price is going in the next 12-18 months, this must be the time for the industry to look afresh at the way it operates. For the reality is that while we in Aberdeen may hope for a bounce back of the Brent index, the rest of the world benefits from low oil prices: consumers save at the petrol pump, and industries on the balance sheet. All that creates an increase in GDP, spending power and new jobs, so what isn’t there to like about a lower price per barrel? The reaction of some parts of the oil industry to the recent fall in prices has been entirely predictable. Find cost reductions by setting a target or enforce a mandatory cut across the board. Regrettably, as a consequence, we have seen instant head-count reduction, which may seem good sense in the short term, but impacts company loyalty in the long term.
As of January 28, some 12 E&A wells were active on the UKCS, representing an increase of two on last month. Of these 12, four are exploration, the remaining eight appraisal; one West of Shetland, one in the Northern North Sea, two in the Southern North Sea and the lion’s share (eight) in the Central North Sea. To date this year, three wells have spudded, while two side-tracks have also been started from wells that were initiated last year.
BP's former chief executive Lord Browne has warned costs in the North Sea must be reduced if it is to remain competitive within the global market. Lord Browne, who led the oil giant for 12 years, said while there was "a lot of oil and gas left" in the North Sea, it was challenged by the expense in comparison to other regions. The price of oil has halved since last year when it sat at $115 a barrel.
BG Group warned of further job cuts and budget slashing yesterday as it also revealed it had wiped £4billion off the value of oil and gas assets globally to reflect the sharp fall in crude prices. UK North Sea output was up by about 5% in 2014 as BG slumped to pre-tax losses of £1.5billion, from profits of £2.58million a year earlier. Revenue and other income was 2% higher at £12.9billion. Ernst den Hartigh, managing director of European exploration and production, said: “We safely increased production for a second successive year. Our priorities for 2015 are to complete the offshore investment campaign we started last autumn and ensure we reduce operating costs to a more sustainable level.”
Contractor Petrofac could be making a number of job losses after Marathon Oil said it would be reviewing how it maintained and operated its Brae field in the North Sea. The companies are currently in discussion following an announcement by the US firm last month that it would be implementing new maintenance strategies to address its “late Life operations”. In a letter to staff, Petrofac said it had been advised by Marathon that they anticipated a “significant reduction” in discretionary and project type activities on an annual basis.
BP will heap more pain on the UK oil industry when it reveals plans for billions of pounds of spending cuts due to the collapse in oil prices. The company’s annual results tomorrow are expected to show underlying profits slumped by 15% to 11.5 billion US dollars (£7.6 billion), with the plunge in the value of the Russian rouble adding to its difficulties. It is expected to disclose that last year’s spending of 23 billion US dollars (£15.3 billion) on major projects will come down as it joins other industry giants in reacting to the new lower price environment of around 50 US dollars a barrel.
Offshore oil workers need to take a “reality check” and understand that current shifts which amount to working 20 weeks a year are no longer sustainable, according to one of the North Sea’s biggest employers. Unions have complained that changes in shift patterns from the current two weeks offshore followed by three weeks of leave to three on, three off will lead to longer hours and compromise safety. But Dave Stewart, managing director of Wood Group UK which employs 12,000 workers including 5,000 offshore, said the industry has been working “too inefficiently for too long”.
Want to buy an oil well in UK’s North Sea? There are plenty available as some of the industry’s largest names try to sell aging, costly wells that have become even less profitable with the plunge in crude prices. BG Group Plc, Apache Corp. and Marathon Oil Corp. are among companies that have explored a sale of their North Sea assets, according to people familiar with the processes. In all, assets worth as much as $30 billion are currently for sale in the North Sea, said Dave Blackwood, senior adviser to investment bank Evercore Partners Inc.
Aberdeen’s council leader will today call for the UK and Scottish governments to “seize the moment” and back plans for a £2billion investment in the north-east. Jenny Laing will use a North Sea oil summit to argue for a radical transformation of the area through spending on transport, housing and skills development to help secure the long-term future of the industry. The city council administration believes the level of attention currently focused on the energy sector, due to the dramatic fall in the price of Brent Crude, provides a “historic opportunity” for the region.
A group of MPs has claimed that the North Sea industry is using the oil price slump as an “opportunity” to cancel projects, sack workers and shelve maintenance work. A motion has been tabled at Westminster and signed by 16 MPs saying that they are “dismayed” by the actions of some employers since the price plummeted. Industry body Oil and Gas UK has written to Alex Cunningham, the Labour member for Stockton North who lodged the motion, to deny that the sector is taking “short-term responses”.
Drilling company Archer is in consultation with its staff about redundancies on a number of its North Sea operations. The move will affect offshore employees on the Shell Brent Alpha, Bravo and Delta as well as staff known as the “roving crew” according to documents seen by Energy Voice. In a letter to staff, Archer said the redundancies had been caused by the oil major Shell’s announcement it would be ceasing operations on its Brent Delta Rig.
Sadly, there has been political talk and expert commentary that safety will suffer as a result of the industry’s current ‘crisis’. And that we shouldn't be under any illusions that we don’t need to make some difficult decisions. So where does safety sit in the unholy trinity of safety, cost and production? Firstly, we need to look at what we say and what we do.
As we are well aware, the UK oil and gas industry has been hitting the headlines. Right now the focus is on the impact of the falling oil price, a cause for concern in terms of investment and jobs. Underneath the current headlines, however, are the serious problems our industry has been facing for a number of years including a dramatic decline in exploration, rising operational costs and a substantial drop in production efficiency. While the rapid fall in oil price has exacerbated these existing problems, we believe there is significant potential for maximising economic recovery of oil and gas from the UK continental shelf (UKCS) through collaborative work between the industry, HM Treasury and the new regulator, the Oil and Gas Authority (OGA).
An energy minister has refused to rule out a rise in fuel duties following a drop in oil prices. Baroness Verma, the Department for Energy and Climate Change minister in the House of Lords, said green issues had to be considered. Her comments came after Tory Lord Howell of Guildford, the father-in-law of Chancellor George Osborne, urged her to rule out any hikes.
A taskforce formed by First Minister Nicola Sturgeon to deal with job losses in the North Sea will meet every month, it was announced yesterday. Industry and public sector leaders met with taskforce chairwoman Lena Wilson in a secret meeting at Aberdeen’s Ardoe House hotel yesterday to discuss job cuts which could affect thousands of North Sea workers. The location of the meeting was kept quiet in an effort to ensure the proceedings remained private. The Scottish Government has not revealed who the members of the task force panel are, although a list of companies including BP, Aker, Petrofac and Wood Group are said to have provided representatives.
The Civil Aviation Authority (CAA) said improvements have been made to offshore helicopter flights, but there is still more to be done. The body said many of the safety objectives it had set last year had already been met such as emergency breathing systems and cancelling flights in the most extreme sea conditions. It said the safety of those who travel in offshore helicopter flight is “paramount”.
Industry officials believe the Budget is the right time to bring forward any further North Sea oil tax changes, George Osborne has claimed amid calls for urgent action. The Chancellor gave assurances in the Commons that the Government will do everything to support the North Sea oil and gas industry while it attempts to cope with falls in the oil price. But Labour and the SNP warned Mr Osborne against waiting for the Budget on March 18 to announce further help for the industry.
Vital North Sea oil and gas reforms remained on track last night after a bid to scupper the plans failed in Westminster. The "cornerstone" of Sir Ian Wood’s recommendations for the future of the sector is now poised to become law within weeks after a wrecking amendment by a group of MPs fell in the Commons. Members of the environmental audit committee tried to remove a section of the Infrastructure Bill which for the first time would enshrine in law "the objective of maximising the economic recovery of UK petroleum".
The north-east can become a carbon capture and storage (CCS) “powerhouse” of Europe, benefiting from job creation and other economic rewards as the fledgling industry takes off, seminar delegates will hear today. Chaired by Aberdeen Harbour Board chief executive Colin Parker, the event throws the spotlight on new CCS opportunities facing the region as it battles to overcome a big slump in oil prices. But it will also highlight concerns about the dangers of any sluggish action from Westminster in getting projects off the ground.
Companies with technologies that can cut the cost of oil and gas production will be highlighted in a new showcase at the subsea industry’s leading event this year. In an effort to demonstrate how recent innovations can help operators and oil services firms reduce costs, Subsea Expo will provide a platform for organisations to introduce, discuss and demonstrate their latest innovations. Chaired by Dr Gordon Drummond, project director for the National Subsea Research Initiative (NSRI), the session will give a dozen companies ten minutes in the spotlight to outline their innovation and potential applications.
Antrim’s discovery of a “proxy tabulation error” sent a shiver down the spine of those of us who attend corporate meetings. Resolutions are easier to calculate than oil reserves, but it’s still no game for amateurs. Antrim Energy’s shareholders thought they had resolved to appoint a chairman in December. By Hogmanay the person they thought they had in place had been invited to “resign” due to what was referred to as a “proxy calculation error”. Instead of receiving the reported nearly 80% of the vote he actually received nearer 21%. Unlike for oil reserves, reporting resolutions is not supposed to be a “probable” against “possible” exercise.
A conference has been called in Aberdeen to offer advice to oil and gas contractors as North Sea firms begin cutting thousands of jobs and rates are also reduced. Hundreds of people are already out of work as major energy firms react to the Brent crude slump. Last week, Talisman Sinopec said 300 jobs from its North Sea operations are to go, including 200 contractors. Schlumberger and BP have also revealed plans to axe hundreds of north-east jobs.
Aberdeen Central SNP MSP Kevin Stewart has claimed politicians who supported amendments to a controversial piece of Westminster legislation are guilty of a “complete betrayal of oil workers across the north-east”. Scottish Labour MPs Mark Lazarowicz and Katy Clark and Scottish Liberal Democrat MP Alan Reid all put their names behind the changes to the Infrastructure Bill, which will be debated today. Members of Westminster’s environmental audit committee tabled an amendment calling for the removal of a section, which would enshrine in law “the objective of maximising the economic recovery of UK petroleum”.
Battle lines have been drawn between North Sea firms and thousands of workers over plans to shake-up shift patterns. American firms Apache and Marathon have both unveiled proposals to replace “two weeks on, two/three weeks off” rotations with “three weeks on, three weeks off” (3:3). The move was revealed after operators and contractors including BP and Talisman Sinopec announced plans to make hundreds of redundancies in recent weeks.