The Magazine for Underwater Professionals

Mar/Apr 2015

COCKS' COLUMN

Is the barrel half empty or half full?

Sometimes in the past I have been worried as to how I will fill my column, but this time that hasn’t been a problem. Information on the future of the offshore world spews out and the usual prophets of gloom wait to be proved wrong. I have always been a believer in the half full barrel of oil and look for the advantages to be gleaned from a flow of bad news.

 

Since my last column there has been a recovery in the low price of oil and in the prospects for the Conservative party in the UK general election in May. The outlook for oil companies and those servicing the industry vary enormously, with the John Wood Group being possibly the most optimistic; it is always wise to have a long-term perspective and I have been greatly helped in my comments by two presentations to the Society for Underwater Technology (SUT) by Douglas-Westwood, the 25-year-old energy research group.

 

RAISE

The sharp decline in the price of oil has caused a number of projects to be cancelled and Shell to decide to decommission its Brent North Sea oil field early. Drilling in the Arctic has been postponed and Petrobras is trying to raise its head above the continued flow of mismanagement and fraud. Oil discoveries have been few and far between (now at a 20-year low) but the opening to non-Mexican oil companies of drilling in the Gulf of Mexico should lead to some worthwhile discoveries, albeit at depth.

 

In its annual presentation to the SUT, Douglas-Westwood made clear that much of oil production is being stored, with facilities in Europe and Asia almost 85% full, as there has not been a large reduction in production. One of the greatest problems has been the annual rise in costs of more than 10% a year and it is clear major producers are using the low oil price as a reason to reduce wage costs, with North Sea companies switching the two weeks on, three weeks off regime to three weeks on and three weeks off; the trade unions are making their usual vocal complaints but there is no doubt companies have a golden opportunity to look closely at all their costs.

 

One positive development is likely to be the bringing forward, as with the Brent field, of decommissioning – Shell estimates that this will take up to ten years. Oil and Gas UK believes that between 2014 and 2023 oil companies will spend GB£14 billion plugging North Sea wells and removing infrastructure. Total capital spending on the North Sea is forecast to fall from GB£14.8 billion last year to between GB£9.5 billion and GB£11.5 billion this year.

 

SWITCH

Douglas-Westwood makes the important point that in times of glut it is much easier to switch off onshore operations and that major new production facilities will continue to be constructed. In its comments for 2014-2018, the company forecasts a steady increase in the world oilfield services market from US$330 billion to US$422 billion.

 

In the UK, I am pleased to see a definite go ahead for the GB£1 billion Swansea tidal lagoon, to be followed possibly by a GB£6 billion lagoon off the Cardiff coast and a GB£8.5 million hydroelectric scheme to be built north of Loch Lomond. Although the disadvantages of wind power continue to be pointed out – with, for example, wind farms being paid GB£53 million in 2014 to shut down turbines – the world’s biggest offshore wind farm has been approved off the coast of Yorkshire, enough to power two million homes. Sadly, for taxpayers the annual subsidy could be as high as GB£900 million.

 

RETURN

Now to return to the UK political scene. With a flow of encouraging economic news, the Conservatives seem well placed for the general election and I expect some tax concessions to be made in the Budget to North Sea energy producers. If the Conservatives get an overall majority, I can see a further decline in the love affair for green energy. I cannot see any partnership between the Labour and Scottish Nationalists lasting very long and, if this happens, I expect another general election within 12 months. With very low inflation and increasing wages, there is scope for more generous tax cuts to be promised and, under the glare of publicity and hopefully some TV debates, the more outlandish statements by the Green Party, whose forecasts are completely confused, and UKIP will unravel. Increasing tension between the Labour party’s Miliband and Balls should help the Tories.

 

INCREASE

The new HSE Approved Codes of Practice for Diving continue to be welcomed and in particular the increase in the size of dive teams. I welcome the Norwegian additional requirements for diving medicals and the changes to bell diving entry and training requirements to come in 2016, with a minimum of 100 logged dives and three lock-outs before being accepted on the course.

 

I am delighted to be able to finish this column with congratulations to the John Wood Group, which has shown its confidence in its long-term future by increasing the dividend for 2014 sharply and repeating its forecast of a rise in the annual dividend from 2015 onwards by a double digit percentage. I am also pleased by the acquisition of the National Hyperbaric Centre in Aberdeen and the Subtech Group in South Africa by James Fisher, where I am also a shareholder; this follows the acquisition of Divex and Osiris, so at least I am firmly committed to the long-term future of the oil and gas industries. Even Petrofac is more optimistic, with the chief executive saying that the company has entered 2015 in a much stronger position.

 

 

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