As director of an Iraqi security services company, I am often asked by energy companies what the key issues are that are currently affecting security for their operations in Iraq and how I see these trends developing in 2016. Unsurprisingly, most trends impacting the energy sector are strongly influenced by the sharp drop in oil prices. In particular, we are concerned about increasing price pressure on security provision from international energy companies. Those who make senior policy decisions on security matters know that the probability of attacks does not change with oil prices. If the risks were there on a $100-dollar barrel, then you can make a safe assumption they are still there in a $40-dollar barrel. However, our industry is being asked to reduce costs by up to 20%. As security operators don’t have such margins to begin with, this is causing real difficulties, and we advise energy companies that security in high-risk areas is an essential: it’s vital to think very carefully about the impact of reducing security budgets.
The infamous Guy Fawkes belonged to a group who planned the failed Gunpowder Plot of 1605. The plotters hid a large amount of gunpowder in a cellar beneath the House of Lords in an assassination attempt on the King. However, the authorities received a ‘tip off’ and searched the Palace of Westminster in the early hours of the 5th of November where they found Fawkes guarding the gunpowder.
Before the Energy Transitions Commission was even launched here in Houston a few weeks ago, environmentalists had already dismissed it as a public relations ploy by major oil companies and other peddlers of fossil fuels.
They immediately questioned the climate change credentials of companies like Shell, which is one of the leaders of the initiative to help meet the energy needs of growing world population without damaging the environment beyond repair.
Just a few weeks ago, activists from the environmental community took to their kayaks and posed for pictures in front of Shell’s Polar Pioneer rig moored in Seattle. Paddles raised in defiance, they decried the company’s plans to drill in the Arctic.
During the current difficult period faced by the UKCS oil and gas industry, collaboration between the various parties in the offshore industry has been identified as one of the key factors in ensuring that the oil and gas output from the UKCS is maximised.
There has been recent discussion in Energy Voice about some of the ways in which this can be done – and some of the problems being encountered, including the publication of some very interesting survey results published by Deloitte.
Looking at these things in terms of their legal and contractual dimensions, there might be lessons to take from the way that the (onshore) construction and engineering sector has dealt with these issues in the last decade or so. In that area, particular forms of standard form contracts and the use of “good faith” obligations have been at the centre of trying to ensure
collaborative working – with some success.
I’ve received many questions following recent articles on how to manage during difficult times.
Readers are asking what specific things they could do, or I have done, or we are planning to turn the generic advice into practical measures.
Well, I suppose it all depends. My business situation will be different from everyone else’s, so my decisions may or may not be relevant to others, but I am happy to share some of the tactical options we took to make our business less vulnerable during the current downturn in our industry.
Many of us are old enough to remember buying vinyl albums. After you bought a new one, you would study every detail of the cover, and, then, you would play it repeatedly until you knew every track.
Not only that, you knew the order of the tracks.
I find good music inspirational. Some of you will already know that I write a weekly message on Core Values to my employees, and I always use a musical reference as a hook.
So today, I want to share my playlist for leading in difficult times.
If 14 frogs sat on a log and three decided to jump into the water, how many would be left?
I know what you’re thinking – 11. It’s simple arithmetic, right? Wrong. Read the question again.
They decide to jump in; but the question doesn’t say they actually jump. So there are still 14 on the log. After all, there’s a big difference between our intentions and our actions.
At this time of year our thoughts turn to technology, right? You did know April 26 is World Intellectual Property Day didn’t you? The “T” in OTC is for “Technology” not “Tee” for golf - but you knew that, right?
Technology has the potential to revitalise this industry and the UKCS in particular. Almost irrespective of the oil price we need increased production at lower cost. And we need it soon.
It’s not rocket science (or is it?). We need to promote, protect, resource and reward innovation. As for the “World Intellectual Property Day” I don’t expect you to wear the lapel badge.
I’m a fan of Geeks, but for this brand they need a new PR company. However we all can, and should, be innovation champions.
When emerging technologies and key trends are discussed there is a vast array of suggestions made and debated.
They range from wearable technology, 3D printing, bio-computers, through to the "internet of things" and many more.
We've all read plenty of stories predicting the future of the oil industry, with endless questions like: What will the oil price be in six months? Will we receive a tax cut as an industry in the imminent budget announcement? When Will OPEC reduce production to reduce the surplus supply of oil and gas?
So it may seem strange timing to talk about recruitment and investing in the future with universal cuts - but this is key to securing the industry for generations to come.
The most frustrating factor of these unanswered questions is that we have very little control over the outcomes. For many, it is a tough and trying time as leaders have very little choice but to say farewell to long-serving staff in order to reduce their cost base.
Having witnessed a dip in the industry before, one thing that always astounds me is how the cycles of recession and talent wars continue.
As the oil price plummets to its lowest level in more than a decade, oil and gas industry bosses in the north-east are making cuts to curtail declining profits.
We can’t avoid that reality.
The energy sector is increasingly feeling the pinch and staff layoffs are inevitable as challenging times ensue over the next quarter and beyond.
Redundancies in any company during a recession are tough. But in a cyclical market, it is important to try and make the process as pain-free as possible for those whose jobs could be at threat.
In these interesting times we may need to look outside our usual patch to keep our people busy through 2015. But Bethlehem? OK, not exactly Bethlehem, but perhaps not far away from that little town.
Israel just announced a major new gas discovery (reportedly 3.2 trillion cubic feet). While many of us were transfixed by the oil price, Israel was holding its first ever international oil and gas conference.
There used to be an Israeli joke that Moses had delivered the Jews to the only place in the Middle East with no oil or gas.
International Tubular Services (ITS) has become the second Scottish business to self-report having benefited from a potentially corrupt payment, and reach a civil settlement which sees them paying over a substantial sum to the Civil Recovery Unit.
My advice to other Scottish firms with bribery and corruption “skeletons” would be to come clean now to reduce the risk of being subject to a criminal investigation and more significant penalties after a self-reporting deadline expires next June.
Aberdeen-based ITS admitted it had benefitted from a profit of £172,200 as a result of a corrupt payment made by a former Kazakhstan-based employee to secure additional contractual work in the former Soviet republic.
Stock markets, oil companies, service companies and investors are reeling from Saudi’s shock decision not to support a cut in OPEC production in order to balancesupply and support prices, and the consequent slump in oil prices.
This stance is a radical departure from Saudi’s previous behaviour when supply and demand fell modestly out of balance.
In the past, a few words of support have been enough to have the oil traders scurrying back to their desks to close their short positions.
Why the change of policy on this occasion?
As a result of lower prices and rising cost the oil and gas industry has been lobbying hard for improvements to the oil and gas fiscal regime and will have been watching the Autumn Statement closely for positive reforms.
Whilst some announcements were made, further consultation will take place before the package is agreed. It is not clear whether this will happen ahead of next year’s general election.
Further details were announced by the Rt Hon Danny Alexander MP in Aberdeen on Thursday.
Smart thinking oil and gas professionals in the Organisation of the Petroleum Exporting Countries (OPEC) are continuing to pump their easy to reach hydrocarbons for their own long term gain. It is their prerogative in a competitive world marketplace.
This and the vast quantities of shale gas flooding the North American market have combined to shatter the certainty that existed in oil prices.
World renowned entrepreneur and founder of Microsoft Corporation, Bill Gates once said: “Success is a lousy teacher. It seduces smart people into thinking they can't lose.”
Chancellor George Osborne took the floor yesterday for what is the last Autumn Statement before the next general election, and probably the current Government’s final opportunity to impact the economy.
But given the fiscal position the Government finds itself in with the budget deficit remaining high and with tax revenues lower than expected, was the Chancellor able to deliver any December cheer for the oil & gas industry?
Well, we definitely saw a number of positive items. The Government restated its support for both the onshore and offshore oil & gas industries, with a mixture of tax and other incentives such as the allocation of £31m to fund the creation of a world class sub-surface research test centre through the National Environmental Research Council.
Oh well, the North Sea is being kept on tenterhooks for a few more hours, with Treasury first secretary Danny Alexander scheduled to deliver the supposed main news today tomorrow.
All chancellor Osborne was prepared to do was trail a few crumbs without even mentioning the North Sea fiscal review, let alone whether it will be the cornerstone of the Alexander delivery, though it of course will be.
Just three measures were mentioned in his Autumn Statement address: “I can tell the house today that we will go ahead with an immediate reduction in the rate of the supplementary charge from 32% to 30%, we will expand the ring-fenced expenditure supplement from six to 10 years and we’re introducing with immediate effect a new cluster area allowance.”
We all need to remember, but often choose to forget, that the oil & gas exploration and production is a highly cyclical business. There have been seven significant price cycles since 1970 and also a few minor ones between times, so yet another should come as no surprise.
The real surprise is that no one ever seems to build the probability into their business planning!
The reasons for the fall in Brent crude prices from $115 in June to below $71 following November’s OPEC meeting are well documented, as is the realisation that Saudi Arabia is now defending market share, rather than a minimum price.
We’re mostly aware of the saying “May you live in interesting times”. However, it was not uttered by Chinese philosopher Confucius (551-471 BC); rather it is a 20th Century faux Confucian saying attributed to Frederic R Coudert at the Proceedings of the Academy of Political Science in the US, 1939.
Research reveals that what he actually said was, “May you live in an interesting age”.
While the “interesting times” bit appears obscure as to origin, US President Kennedy used it in a speech in June 1966: “There is a Chinese curse which says ‘May he live in interesting times’.”
The proposal from the Department of Energy and Climate Change (DECC) to establish a sovereign wealth fund based on future revenues from the extraction of shale gas, is, in principle a good idea. Many countries now have such a fund, turning current oil and gas revenues into a national asset for the long term. Norway's fund is most often quoted as an example; another lesser known example is the state of Texas in the US which has such a fund for its universities.
The details of the proposal from DECC are yet to be released so its final shape and impact is unknown. Given the size of the UK economy, and our budget deficit, the idea that we can build a large financial fund of the type enjoyed by Norway is unrealistic.
However, I would argue that there is still a great deal that could be done with a shale gas fund. Most sovereign wealth funds build financial capital taking revenues from the oil and gas industry and investing them in the stock exchange. I would propose DECC consider a fund for human capital, not financial capital.
UK Offshore Licensing Rounds attract attention and the government settled into a routine of offering ‘car boot sales’ and then saying that the latest offering has attracted even greater interest than before.
And so, when energy minister for the time being, Matthew Hancock, yesterday took the wraps off who is being provisionally offered what is the 28th Round, the predictable words were trotted out: “This successful licensing round, which is on track to be one of biggest rounds ever in five decades, is a boost for the UK economy and shows that our long-term economic plan is working.”
How come certain big American brands are looking to exit and are virtually absent as bidders? How come practically everything on the UKCS is for sale; in large measure because of a fiscal regime long past its sell-by date and the penchant for Treasury to treat the North Sea as a milch cow?
That said, there is quite a bit of interest as companies look to the future.
