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by Neil Evans
22 January 2014
A positive future

A positive future

When measuring the success of North Sea oil, there is a well-worn phrase that has been used by everyone from industry analysts to the Prime Minister.

Forecasts for how long the boom would last when oil was first discovered in the late 1960s were as low as a few decades – now more than 40 years on, it is estimated only half the potential reserves have been extracted.

Improvements in technology, drilling techniques and knowledge have meant that the lifespan has been continually extended, providing not just a vital source of tax revenue for the Treasury, but employment for 440,000 people UK-wide – 150,000 of them in Scotland.

The success of the oil and gas industry is still greatly dependent on political actions – in 2011 when Chancellor George Osborne announced a tax on profits, he faced a backlash from the industry, including Energy Firm Statoil, which halted work on two fields worth more than £6bn.

Last year, the political impact of the industry was put sharply into the spotlight, with debate over its future if Scotland votes for independence and the revelation in Holyrood in May, from former Chancellor Denis Healey, that the value of oil to the UK in the 1970s had been “underplayed” because of the threat of nationalism.

However, at a time when Scotland along with the rest of the UK is still recovering from recession, it is the sector’s role as a major employer that has perhaps the most importance.

Last year, Barclays published a report optimistic about the future of the industry. Investment is at a 30-year high, with Walter Cumming, head of oil and gas corporate banking, saying that exploration and production activity levels indicated supply for “decades to come” and investment from UK and foreign companies and government tax incentives “pointing to a positive future”.

Nearly half of firms surveyed for the report said the UK Continental Shelf was the area with greatest potential to drive their companies’ growth.

But with this optimism for a “new dawn”, it warned skills shortages have “threatened to stifle production rates”.

“Unfortunately, as the region’s reserves have aged, so has its workforce – and it must now address the issue if it is to succeed in the medium to long term.”

To help solve the problem, OPITO, the industry organisation dedicated to ensuring adequate skills, training and workforce development, has brought together representatives from across the sector – including Oil and Gas UK and Subsea UK – to carry out what is aimed to be the most comprehensive piece of research into the labour market on the skills gap.

A report is expected in March with information on exactly where the shortages are now and in the future and will feed into a new strategy for the industry. Although previous reports have estimated around 120,000 new employees over the next ten years, this Labour Market Intelligence hopes to set out even more precise figures.

John McDonald, managing director of OPITO, said it was a “great industry with a great future” and while all industries have skills gaps, the work being carried out would identify skills issues now and address challenges in the future.

OPITO offers help to the Ministry of Defence to allow people leaving the armed forces to find careers in the oil and gas sector and he said there was also a need to train up apprentices as well as attracting people who may have left the industry back in, as well as encouraging more women to see the sector as an attractive place to work.

He added: “Going back to the baseline, this all starts in primary and secondary school. We have to make this more attractive – the STEM subjects – we have to make sure that pupils see they have an interest in them and we’re working with schools to create curriculum content which lets young people see how the knowledge can be used in a practical way in the oil and gas industry.”

He said parents also had a big role to play as well as teachers, and added that “credible work experience” programmes for both young people and placements for teachers to help them understand the opportunities and the relevance of the curriculum within that.”

In the Barclays report, 85 per cent of the industry supported increased apprenticeship schemes to tackle skills gaps, with 41 per cent attracting skilled staff from other UK industries, 23 per cent going overseas for skilled staff and 18 per cent wanting to incentivise workers to prolong their careers.
Accord Energy Solutions, a specialist hydrocarbon accounting firm based in Aberdeen, was founded three years ago and its clients include BP, Marathon and Shell.

It has taken a different approach, establishing an employee benefit trust with the aim of being 51 per cent owned by its workforce, as well as offering share incentives to its staff.

Since it was founded, it has gone up to 40 employees and has a turnover of £4.3m, with only two people having left the company since its inception.

Director Alan Spence said that while the principle of employee ownership was not foreseen as a way to give the company an edge in recruitment, he said it had that potential.
“We are, in common with most oil and gas companies, struggling to compete for a very small resource pool.
“There will always be two ways to do this. You can try to attract people who are experienced and tempt them away from your competitors, or you can bite the bullet and expand your training budget.
“Some companies, I suppose, are questioning the value of training people up, only to lose them again.”

He added: “We have taken on a couple of young graduates and if we can train them and retain them that will be a success.

“We are competing with various players in this niche area of the oil and gas industry for good people and we have been very successful in that because of the employee ownership model.”

Currently the employee benefit trust owns a 5 per cent stake in the company, but has a golden share, meaning the five trustees can prevent the company from being sold.

Spence added: “The traditional model has its place, but I think the challenge with that model is it’s not financially attractive for a lot of people and it does bring a short-term outlook.

“It’s really about maximising profits in the short term without really thinking about the long-term implications for the business. That short-termism is in some ways probably partly responsible for the issues with recruitment in the oil and gas industry.”

One area in which the sector is seeing particular success in the UK is subsea. There are about 5,000 subsea wells worldwide and nearly 2,000 of them are in UK waters.

It has meant a great deal of foreign investment in the UK – and Scotland – including Norwegian-owned Subsea 7, US-owned FMC Technologies and GE – which has its subsea headquarters in Scotland.
The industry group Subsea UK is based in Westhill near Aberdeen and the industry employs 60,000 of the UK’s oil and gas workforce.

With the improvements in technology allowing more efficient recovery from known wells, which may have only previously had about 35 per cent of the oil removed, chief executive Neil Gordon said it was important that the investment and support was there to fund the necessary research and development – with another 10 per cent from a reservoir worth potentially billions of pounds to the economy.

He added: “There is a recognition that this industry is alive and kicking and needs to be nurtured. It’s like a plant. If you take too much away from it, you will kill it, but if you nurture it, it will go on living for a long time.

“What has been seen in the past is it is just an easy way to get some more money, you turn the tap on and take more tax from it.

“Eventually, if you bite the hand that feeds you, you can actually affect the investment and the opportunity. You’ve got to be careful that you create the right environment for the investment because there are other parts of the world where some of these big operators can invest.

“Just because we have oil and gas on our doorstep, if we don’t create the right economic environments for these operators and companies then they may choose to go to other parts.”

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