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.
| 
