UK offshore oil and gas - Energy and Climate Change Contents


Examination of Witnesses (Question Numbers 160-170)

MR MALCOLM WEBB AND MR PAUL DYMOND

19 MARCH 2009

  Q160  Mr Anderson: I said support it and fund it.

  Mr Webb: We are not the only users of the offshore and I think that is probably the sort of thing we should talk to all offshore users about.

  Chairman: Can we just turn to west of Shetland and the potential that there is there?

  Q161  Mr Weir: What is the potential to exploit reserves west of Shetland and what are the main barriers to exploiting these reserves?

  Mr Webb: I am not sure they are barriers, they are challenges. This is in deeper water, more hostile territory. It is exploration territory as well. As Alex Kemp said, we are not too sure what is out there. We carry a number that is remarkably similar to his. We think there is potential for about four billion barrels out there, which is a substantial prize. There have been some developments out there and there have also been setbacks. After the initial discoveries I think people thought we were going to be into the new Klondike and there would be discoveries made everywhere but progress has been somewhat slower than that. In terms of barriers, I think we have got to look at challenges on the one side which are all to do with geology, physical location, the engineering challenge, the volatility of the commodity price itself, the skills and development challenge. All of those I think the industry can manage. Currently there is something of a barrier that can be lifted, and it is a fiscal barrier, and that is within the purview of the Government and that is what we need to see happen, positive encouragement for people to get in and take the risks in the west of Shetland, the exploration and development risks.

  Q162  Mr Weir: Given the volatility of the price of oil at the moment and its level at $40 a barrel, does that make development west of Shetland currently economic?

  Mr Webb: As Alex Kemp said, this industry has to take a medium-term view upon oil price. I can assure you nobody did their economics at $140 and people do not necessarily always do their economics at $40. $40 can have an impact upon cash flows, it can have that sort of immediate impact and, therefore, knock through on capital that is available for development. You can take your view upon the oil price, and I would love to give you my prediction for it but it is very personal.

  Q163  Sir Robert Smith: It is also the gas price.

  Mr Webb: You are quite right. As Alex said, please look at the gas price, 30 pence a therm, and the forward price is not much better either. Those sorts of levels would not be good but I personally do not think that is the long-term view and that is also why it is hugely important that this country does unlock those reserves. Frankly, I think the oil price will rise. I do not think the world is replete with immediately available sources of oil, therefore I think the price will rise and people will be planning accordingly.

  Q164  Mr Weir: When we heard from the environmentalists they were suggesting that there should be certain excluded areas, for example around St Kilda and the Hebrides. Do you think there is a case for doing so?

  Mr Webb: We would have to look at every case on its merits, but hopefully what we can come down to is there is a question of balance here. We are looking for a sustainable future for our economy and that involves issues that are economic, social and environmental, so it is a question of looking at particular cases and drawing the right balanced judgment.

  Q165  Sir Robert Smith: Do you share Professor Kemp's view that if you could unlock the west of Shetland the psychological boost is quite an important added bonus for the whole province?

  Mr Webb: Yes, I do. The industry is looking for a signal from the Government at the moment. Both west of Shetland and generally they need to pass a clear signal that it does value this industry, that it sees the need for it and it will do the things that are needed to make this basin competitive.

  Q166  Sir Robert Smith: I suppose one other thing is there is a certain economic value out there in the North Sea and some profits to be made by the companies and tax revenues to be gained by the country. There are also costs to be put on because of environmental, welfare and safety concerns. In the end, is this a simple trade-off that if we as a society recognise the need to put more costs on the industry we have to accept that we take less share of tax out of the industry?

  Mr Webb: Yes. Also, I think that we as a society have to understand that getting those extra barrels is going to be a more difficult and costly event generally in the economics of the basin too and, therefore, I do not think we should have overblown aspirations as to how much practically we can get out. I think that is part of the problem. I fear we are in a regime at the moment that is looking to maximise short-term fiscal revenues and may be overlooking the potential for long-term economic benefit. The economic benefit here is very substantial. We say there are 25 billion barrels of oil and gas yet to be won. Plans that we can see in place at the moment have got around ten billion of that within their view, but there is another 15 billion beyond that. If you valued that at, let us say, $100 a barrel, which in the future may not be such a silly thing, that is $1.5 trillion of economic benefit to this country.

  Chairman: I would like to conclude on the issue that you raised on the skills and the exports, £6 million of exports, the skills centres that we have in Aberdeen and, indeed, other parts of the country. I will just take questions from Judy and Dave and you might like to answer them together.

  Judy Mallaber: I am slightly curious. Your written evidence refers to skills shortages in the industry but now we are told it is turning into a skills surplus. A few years back I recall after 9/11 when Rolls-Royce in Derby, near my constituency, was going through a bad time it was suggested to me that there had not been enough training in the oil industry and it would be an ideal place for the skilled Rolls-Royce workers to get jobs. Was it unfair that there had not been the training at that time and have you had to set up OPITO to deal with that? Where has it left you now in terms of skills shortages or skills surpluses? Does it leave you with a good base for export of skills and so on?

  Q167  Mr Anderson: Is there any potential for expanding the skills, coming back to decommissioning, that you could build up a skills base for people solely employed in decommissioning the infrastructure rather than using the workers who do it now?

  Mr Webb: I think on that point it is difficult for me to think that we should construct a separate industry called the oil and gas decommissioning industry. That is a question for the supply chain. I think the supply chain has got the ability to expand into that and deal with that. My view on that would be it is a question of building on the expertise that is already there and going back to address this market.

  Mr Dymond: There are also a lot more jobs involved in maintaining and operating than there are in decommissioning. Decommissioning is very much a non-productive spend, whereas if you were taking that same money and putting it into new investment then you would be developing new reserves, with more jobs and more tax revenues.

  Q168  Mr Anderson: It has got to be done eventually, has it not?

  Mr Webb: Yes.

  Q169  Mr Anderson: In a sense it will be probably a relatively less skilled job.

  Mr Dymond: Not necessarily. The technical challenge for decommissioning is actually to do what we need to do cheaper because it is a non-productive spend. That is where the challenge is and that is what we are looking for the supply chain to develop, the capabilities to be able to reduce the cost of doing what we need to do. That is the challenge there.

  Q170  Chairman: And the skills situation?

  Mr Webb: Somebody said the other day, and I think we have to bear this in mind, that tomorrow has not been cancelled, and this industry has got a huge tomorrow ahead of it. We must keep up our effort on skills and training. We must continue to bring new people into this industry. I think it is almost inevitable we are going to see some job losses over the next year or two, that is almost bound to happen, but I do not think that should be an excuse for us to say, "Well, hold on, we are now going to stop training people, we are going to stop investing in skills and bringing new talent into this industry as well". I know that is a difficult equation at times but we must keep it up. I think if there was a lesson that we learned from the last time we went through something similar to this, although it was not the same because we did not have the banking crisis, it was that some of the skills loss that we suffered as a result of that took us several years to overcome afterwards, so I think there is a new resolve in the industry for that not to happen. That is why we do take this very seriously and why we did back OPITO and are financing OPITO and it is why we run one of the most impressive modern apprenticeship schemes with hugely successful retention and employment rates and with very well paid people coming out of that too, by the way. That is the other point about this industry. The average salary in our industry is £50,000 a year paying £20,000 NI and tax as well. The people who come out of our modern apprenticeship scheme aged 22, highly qualified technicians, are earning £46,000 a year as their starting salary. These are high-tech jobs, this is a high-tech industry and we must keep on investing in the skills, it is absolutely imperative that we do. I can assure you that OPITO will be doing all that it can to make sure that happens. I do not think there will be a slacking off from the industry in that regard but, as I said, it is almost inevitable we are going to see some job losses.

  Chairman: Thank you very much, Mr Webb and Mr Dymond. Thank you for your submissions, which will be very helpful to us, there is an awful lot for us to consider. Thank you.





 
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