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Dire straits in North Sea mean status quo no longer an option

Dire straits in North Sea mean status quo no longer an option

It is no longer a case of IF something is to be done.

It is now a case of WHEN something is done, and WHAT that intervention will be.

I am, of course, referring to the North Sea and the dire straits our oil and gas companies have found themselves in since the price of crude halved in a matter of months.

The crisis has exposed an industry with many and varied problems.

But when the price was higher, those cracks could be more easily papered over.

Yes, there were concerns aired about the direction of travel the industry was taking, the difficulties of extracting oil from more hard-to-reach reservoirs, and the problems associated with decommissioning the complex infrastructure built-up offshore over the past 40 years.

And, yes, there were calls for a review of the tax environment governing the UK Continental Shelf.

But while the oil price remained relatively stable above $100 a barrel there was no concerted clamour for change. The volume was turned down low.

From an outside perspective, the sector seemed to be one on which the pause button had been pushed. It appeared to be an industry waiting for Sir Ian Wood to tell it what to do through his UK Government-mandated blueprint for the future.

The Wood Review a document delivered a year ago this month laid out Sir Ian’s thoughts on maximising the economic life cycle of the basin, increasing recovery by up to four billion barrels of oil equivalent, and delivering £200bn in additional value to the UK economy.

A key recommendation was the establishment of a new industry regulator.

Importantly that man, Andy Samuel, is now in place.

But the job he is getting his teeth into now is a vastly different, and more daunting, undertaking than he could ever have envisaged. The oil price slump has added an urgency for reform in the North Sea that has not been seen for years.

When majors like Shell and BP are seeing their bottom lines hit and cutting billions from their capital spending plans, you know it is time to worry.

So what to do?

Well the good news is that everyone is now talking, and the even better news is that the powers-that-be are now listening.

On Monday, First Minister Nicola Sturgeon, Scottish Secretary Alistair Carmichael and other senior political figures high-tailed it to Aberdeen where they sat down with Mr Samuel, Oil and Gas UK chief executive Malcolm Webb, and senior representatives of the oil and gas companies.

The focus inevitably fell on March 18: the date when Chancellor George Osborne will rise to his feet at Westminster and deliver the most anticipated Budget for years.

Professor Alex Kemp Aberdeen University’s professor of petroleum economics, who has forgotten more about the North Sea than many could hope to ever know suggested Mr Osborne may want to introduce a new tax credit to support small companies in their exploration operations; a measure that has proved a success in Norway.

Mr Webb also wants concessions in the area after suggesting exploration “fell off a cliff” when the Government opted to increase supplementary corporation tax to 62%.

While Mr Osborne is obviously going to have to pull a rabbit from his hat next month, and stomach lower tax receipts from what has been a cash cow for years, the buck doesn’t stop entirely with him.

The oil companies and their workers have to accept they are living in straitened times, and adapt. Myriad operational efficiencies can and should be made.

And while I do not for a moment think that working offshore is an easy living, I do have sympathy with Wood Group UK managing director Dave Stewart’s view that current shift patterns which allow employees to work as little as 20 weeks a year need reviewed.

I firmly believe the UKCS still has a bright future ahead of it and another generation, at least, of offshore workers can benefit from Scotland’s natural resources.

But maintaining the status quo is not an option any longer. Real change must come.

ghuband@thecourier.co.uk