How Bleak Does UKCS Employment Look In Next 12 Months?

by Andreas Exarheas, Assistant Editor, EMEA

A significant number of oil and gas firms operating on the UK Continental Shelf don’t expect employment levels to rise within the region over the next 12 months, according to the 24th Aberdeen & Grampian Chamber of Commerce Oil and Gas Survey.

Out of the 126 firms surveyed in the report, which employ a total of 73,624 employees in the UK, 39 percent expect employment to remain the same in the next year and 30 percent think further staff cuts will be enforced during this period. Sixteen-percent of respondents were unsure if there would be more or less opportunities for workers over the next 12 months and just 15 percent expected job numbers on the UKCS to increase.

On the surface, things don’t look too great for the UKCS in terms of employment in 2017. After a year of deep cuts in the region, companies just aren’t that optimistic about the future. It’s important to note, however, that the AGCC survey was conducted in March 2016, when the price of Brent oil was hovering below $40 for much of the month. From mid-April to the beginning of June, the oil price hasn’t dipped below $40 once. Instead it has gradually climbed to just below the $50 mark, which is a significant threshold for the North Sea, and wider UKCS, oil and gas industry.

At $50 per barrel, two-thirds of the fields currently producing in the North Sea remain economic, David Rennie of Scottish Enterprise told Rigzone in 2015. BP plc echoed the impact of $50 Brent earlier this year, stating that prices slightly above that mark would encourage more drilling. Looking slightly over that benchmark, an average of $53 per barrel would mean the world’s 50 biggest publicly traded companies in the industry could stop bleeding cash, Bloomberg reported Wood Mackenzie Ltd as saying.

With an almost $10 difference in the price of Brent oil from the time the report was conducted to today, it seems like the landscape for the future of the UKCS oil and gas sector has changed slightly. If the survey was carried out amidst the current oil price, perhaps the employment outlook over the next 12 months wouldn’t be so bleak.

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Changing Behavior Biggest Challenge to Oil, Gas Industry

The oil and gas industry has faced many challenges, but the biggest challenge of all may be human nature.

At this year’s Offshore Technology Conference, I spoke with io Oil and Gas Consulting CEO Dan Jackson on the need within the oil and gas industry to be open-minded to new ways of thinking and doing things.  His firm, an independent joint venture backed by GE Oil & Gas and McDermott, was established to introduce a new approach to offshore field development projects. Even before the oil price bust, many offshore projects were being delivered late and over budget; in the current market, the outlook is worse for projects getting off the ground altogether.

His message is not a new one. As a veteran oil and gas industry journalist, I’ve attended countless conferences where discussion has focused on the need for new approaches not only to project development, but also to how industry hires and retains its workforce. As a native of the Houston area, I’ve also seen the boom and bust cycle of oil and gas play out again and again since the 1980s. I feel like I’m caught in a time warp at times, with different clothes and music marking the passage of time. It makes me wonder: Will the oil and gas industry ever change?

Right now, there is a lot of discussion and focus on addressing efficiency and productivity. But when oil prices rise, will companies go back to their old ways? Jackson told me that changing human behavior is difficult, not matter what endeavor is being pursued. Changing your mindset to a new way of thinking is difficult, and takes time and practice.  I have learned this from personal experience, but changing the behavior of thousands of individuals in an industry is a monumental feat compared with an individual’s efforts to eat better or adopt more positive ways of thinking.

Part of me wants to be optimistic. After all, this is an industry that has made significant advancements in technology, drilling and producing oil and gas not only from frontier deepwater regions, but U.S. onshore shale plays. But thinking in new ways will require more than just a cheat sheet with the top five steps for changing behavior. For true change to occur, this shift must continue in spite of the oil price cycle. It will not only come down to technology, but new business models and other changes.

In times of crisis, it’s easy to revert back to old ways, such as cutting staff. It’s like reverting back to an old muscle memory. But if the industry really wants to change, it will require the creation of new muscle memories, and lots of patience and practice.

 

Time Running Out for Malaysian SPACs

by Cheang Chee Yew (Editor, APAC)

Three years ago, the sun seemed to shine on CLIQ Energy Berhad and Sona Petroleum Berhad, two small firms in Malaysia with aspirations to be the next exploration and production (E&P) players in the oil and gas industry.

But time has run out for these special purpose acquisition companies (SPAC) listed on local stock exchange Bursa Malaysia. Both failed to complete any upstream asset acquisitions.

To a large extent, the paths taken by CLIQ and Sona as SPACs – or “shell companies” with no operations or income generating business at the point of their initial public offerings (IPO) – have now come full circle. That’s because SPACs, first introduced in Malaysia in 2009, are given 36 months from their IPOs to make a qualifying acquisition (QA) by utilizing up to 90 percent of the funds or a minimum of $36.7 million (MYR 150 million).

The precarious situation that CLIQ and Sona landed themselves in was certainly not due to the lack of trying.

CLIQ, which raised $118 million (MYR 364.49 million) in April 2013, announced in March 2015 the purchase of two producing oilfields in Kazakhstan as QA for $117.3 million from Phystech Firm LLP. But the Securities Commission Malaysia (SC) returned the QA application on grounds of insufficient disclosures, and because the independent expert had failed to give an opinion on the fairness of the report by a technical expert. CLIQ decided March 7 to liquidate the firm after the SC rejected its request for more time to complete the deal.

Unlike CLIQ, Sona made two attempts to complete its QA.

The SPAC, which raised $172.2 million (MYR 550 million) on Bursa Malaysia in July 2013, announced a $280 million purchase of two oil and gas blocks in the Gulf of Thailand from Salamander Energy Plc in June 2014. But the deal collapsed after Salamander agreed to merge with Ophir Energy plc in late 2014.

Sona did edge closer towards completing the $25 million acquisition of the Stag oilfield in Production License WA-15-L off Western Australia from Quadrant Energy and Santos Ltd. in its second attempt to secure a QA. Shareholders, however, voted overwhelmingly on April 27 against the acquisition of the oilfield.

“We still have [around] three months … before our QA deadline on July 29. We will discuss with our lawyer and explore what are the options we have,” Sona Chairman Mohamed Khandar Merican said, as quoted April 27 in local business media The Edge Markets.

Meantime, Reach Energy Berhad – the last SPAC to be listed on Bursa Malaysia in August 2014 and one that raised $245.3 million (MYR 779.2 million) in an IPO – entered into an agreement to purchase a 60 percent stake in an onshore oil and gas producing block in Mangistau Oblast in southwest Kazakhstan for $155 million. Whether this will be deemed a QA and earn the support of shareholders remains to be seen.

So far, only Hibiscus Petroleum Berhad – Malaysia’s first SPAC – has successfully completed the transition to a full-fledged oil and gas company after its IPO in 2011. The firm now holds interests in upstream assets in Australia, Middle East and Europe.

The existing plight of the SPACs has not been helped by the downturn in the global oil and gas industry as shareholders turned cautious towards QAs, Zulkifli Hamzah, research head at Malaysia’s MIDF Amanah Investment Bank Berhad said April 30 in The Star.

Still, he said he believed that “as a product, SPAC is a viable capital market offering and should be continued.”

Given the dire performance so far, skeptics have called into question SPAC’s role as a viable capital market offering. Industry analysts suggest the hype associated with SPACs was overdone in the past, calling into question the sustainability of the business model.

Such firms have “no assets, but collected funds up front and ride on management expertise … [it’s] very speculative,” Wan Zahidi, an oil and gas analyst at Malaysia’s RHB Group told Rigzone.

Sellers of upstream oil and gas assets hold potential advantages in negotiating with SPACs as the latter, though cash rich, have to make their QAs within three years of listing on Bursa Malaysia, Wan Zahidi said. That might give rise to a situation in which asset holders could potentially inflate prices of upstream assets they are selling to SPACs.

Whether SPACs stay a viable option for aspiring firms keen to join the oil and gas exploration and production business remains to be seen. The future of SPACs in Malaysia will be a lot clearer once the outcome of Reach Energy’s QA is known in a year’s time.

How I Survived My Layoff

by Valerie Jones, Careers Editor

Possibly one of the hardest things for an ambitious, 30-something who has worked consistently since the age of 16 to endure is the same thing hundreds of thousands of oil and gas workers have experienced as of late. And that, my friends, is a layoff.

I can’t say mine was unexpected. I worked at a startup company sprinkled with millennials and senior execs in their late thirties or early forties, free snacks and coffee in the break room, a video game console and endless in-office happy hours. My position was always as a writer, but every few months, the strategy changed. One quarter we were required to write several, shorter pieces per week and the next quarter, we were required to write four lengthy articles per month. If nothing else, writers are quite versatile.

The first cuts encompassed an entire team. The second round of layoffs included some of our writers. So my eyes were wide open.

When I was welcomed one morning with an email telling me to convene in the conference room, I knew what time it was. I mean, I saw the HR guy as I was coming in the office. So no surprises here.

I listened as they outlined our separation package and explained how long the continuation of our medical benefits would last. I didn’t really feel angry, embarrassed or isolated. The room was full. This round of cuts included people from several different departments. I wasn’t singled out. Still, knowing that some of my colleagues had families to care for, mortgages, etc. did tug at my heart strings. I thought my realism – with a hint of optimism – would get me through this transition.

As we newly unemployed workers were hurried out of the building (I made them let me in the kitchen to get my TV dinner – yeah, that was coming with me!), it didn’t really hit me until the receptionist, who I’d developed quite a good relationship with, ran up and hugged me with tears streaming down her face.

“I’m so sorry!” she said.

I assured her it was fine, I’d be fine, it wasn’t her fault and vowed to keep in touch. Then we all went out for drinks – at 10 in the morning.

I was unemployed for a total of three months, and to be honest, it was maddening. I spent about a month in my hometown staying with my parents to cut down on bills, depleted my savings because unemployment pay wasn’t enough to cover all of my expenses and scoured job boards daily looking for positions in my field.

As I mentioned previously, I’ve always worked. So I didn’t know what to do with myself every day. There’s only so many happy hours you can go to. Plus, all my friends were busy during the day – at their jobs. I’ll admit the first week was pretty cool. Almost felt like a vacation of sorts. You relax, regroup and figure out what your next move will be. And then reality set in.

Here’s a few tips I learned that helped me during my transition.

  • Expand Your Search. I wanted to continue working as a journalist, but was open to all industries. So I applied, and applied and applied. And when I didn’t get the response I was hoping for, I expanded my search a bit. This is important. If you’re too tied to a specific position, you may pigeonhole yourself. Think about your skillsets and how they could be useful in other industries.
  • Be Honest With Yourself. I remember getting a response from one company I was only half-heartedly interested in and they required me to take a test, submit three writing samples and some other odd requests I simply didn’t feel like doing because I knew in my heart I didn’t want the job, I probably wouldn’t be happy there, and more than likely I wouldn’t stay. As I entered my third month of unemployment and desperation, I also signed up to some company where I could submit freelance articles. But the pay wasn’t substantial and it was unclear as to what I would be writing about. So I passed on that as well.
  • You’ll Get Rejected. You Have to Be Okay with That. I can’t tell you how many positions I applied for in which I thought, ‘Yes, this will be perfect for me!’ Well, let’s just say the companies didn’t always feel the same. When you don’t get that response or call back, or worse yet, you get the dreaded “We’ve decided to go with another candidate” email, it’s easy to take it personally or get discouraged. But the law of averages says you won’t receive an interview from every position you apply for. Do you date every person who shows interest in you? No. Humans are selective by nature.
  • Keep the Faith. As I approached the end of my third full month of unemployment, I remember literally telling myself I have to get a job in the next week – no matter what. My money was gone. All my bills would be due and I did not want to move back in with my parents. I prayed as well. I began searching on websites I wouldn’t normally – maybe a hidden gem of a job would be found somewhere obscure. Sure enough, I stumbled across a job posting that literally fit me to a ‘T.’ When they emailed me back one day later asking if I could come in for an interview, I had to stop myself from saying, “I’m on the way now.” One day after the interview, they offered me the job on a trial basis. Basically, I had to come in and either sink or swim. Three months later, I was still there and became a salaried employee with benefits.

While three months may seem like a very short time compared to many oil and gas workers who have been searching for jobs for months, the tips I learned can  help at any stage in the job search. For fear of sounding like a broken record, I won’t say that the industry will eventually recover. I will say that though you can’t control the industry – how it ebbs or flows – you can control your actions after a layoff and how you approach the job search. So do what you can to position yourself to come out of the downturn a winner.

 

 

 

 

 

Employment Attitudes Vary in Oil, Gas

by Andreas Exarheas, Assistant European Editor

 

Oil and gas companies rely too much on workforce reductions as a means of cutting costs quickly, according to a Twitter poll conducted by Rigzone.

The vast majority of respondents (49 percent) strongly agreed with the statement above, with 33 percent agreeing and the remaining share of the 195 voters either disagreeing or strongly disagreeing. We’ve seen a lot of job cuts in the oil and gas industry over the past 12 months. While some streamlining of operations are understandably necessary in the current climate, energy firms must realize that other cost-cutting measures can be deployed. For example, workers could accept reduced pay, reduced hours, or even be moved into adjacent sectors within a firm.

What’s encouraging is that despite all the reductions, as many as 46 percent of voters revealed that they hadn’t even considered leaving the sector. In a separate poll, 32 percent of respondents agreed that they had considered leaving the oil and gas industry due to the current downturn, with 22 percent strongly agreeing. Twenty four percent disagreed with the statement however and the remaining 22 percent strongly disagreed. It’s only natural that workers would consider getting out of an industry that has been subjected to as many cuts as ours, but the fact that so many aren’t thinking about it can only be positive.

Focusing on those who have parted ways with the energy industry, another poll revealed respondents believed that professionals who had already been made redundant were unlikely to return to the sector. Forty-five percent of those asked agreed with the statement, with 11 percent strongly agreeing. Thirty-eight percent disagreed with the remaining 6 percent strongly disagreeing. While it probably is unlikely that those who have left will return during the market downturn, it’s not farfetched to believe quite a few workers will consider a return once the oil price increases considerably.

Interestingly, 35 percent of 135 voters in a different poll stated that they can still have a long and rewarding career in the oil and gas industry, despite the current shape of the sector. This could have something to do with the renewed optimism surging through the energy industry, which has seen oil prices steadily climb to close to $50 per barrel. Nineteen percent strongly agreed with the statement, with 30 percent and 16 percent disagreeing and strongly disagreeing, respectively.

The Future Generation of Oil, Gas Workers

Forty-one percent of 183 voters disagreed with the statement that universities are doing a good job of graduating skilled and qualified professionals to join the energy sector. Fourteen percent strongly disagreed, with 35 percent agreeing and ten percent strongly agreeing. If educational institutions are not producing the right kind of workers for the industry, this is an issue that has to be addressed. Graduates are the future of oil and gas and any neglect shown to this group of individuals will ultimately hurt the energy sector in years to come.

Reassuringly, the industry is acutely aware of the importance of these types of people, with 41 percent of 129 voters in a different poll strongly agreeing with the statement that oil and gas companies should still actively recruit graduates, despite making redundancies. Thirty-eight percent agreed with the statement and just 15 and six percent of voters disagreed and strongly disagreed, respectively.

Offshore Technology Conference Vibe

While OTC may not have been as busy as previous years in 2016, the industry still believes that it’s a very worthwhile event. Forty-three percent of those polled in a separate vote believe that the show offers a good networking opportunity for jobseekers in the sector, with 15 percent strongly agreeing with that statement.

Naturally the show can’t please everyone however, as the poll highlighted, with 34 percent disagreeing and 8 percent strongly disagreeing. Times are tough for oil and gas right now and a range of job sectors in the industry are undoubtedly tough to break into in the current environment. Having said that, the industry certainly seems to be on an upswing. Crude oil prices are increasing and lots of exhibitors at OTC believe times will get better by next year. It’s unclear how long it will take for this improvement to translate into increased employment opportunities, but it would be surprising if there weren’t more roles on offer in oil and gas by the second half of 2017.

Can Saudi Arabia Overcome Its Oil Addiction?

by Karen Boman, Senior Editor

Former U.S. President George W. Bush once described the United States as being addicted to oil. But apparently, we’re not the only country that has had this problem. Saudi Arabia – which previously  led OPEC to freeze production, sending oil prices plummeting and traumatic tremors through the global oil and gas industry – is seeking to end its own oil addiction.

Deputy Crown Prince Mohammed bin Salman, who is overseeing Saudi Arabia’s economy, unveiled “Vision 2030,” which seeks to raise non-oil revenue in Saudi Arabia’s economy from $43.6 billion in 2015 to $160 billion by 2020 and $267 billion by 2030.

“We will not allow our country ever to be at the mercy of commodity price volatility or external markets,” Reuters quoted Prince Mohammed as saying in an April 25 news article.

It shouldn’t come as a surprise to see Saudi Arabia make this move.  Middle Eastern oil exporters lost $390 billion in revenue last year due to lower oil prices, and are expected to lose approximately $500 billion this year, according to an IMF report. Saudi Arabia has long used its oil wealth to support its population through welfare programs and handouts. However, this plan is not sustainable in the long-term, meaning Saudi Arabia will need to create economic opportunities for its population, particularly its young people.

Still, it’s strange to hear the prince talk about not ever wanting to be at the mercy of commodity price volatility. It’s the same thing that many in the U.S. oil and gas industry, following massive industrywide layoffs and brutal paring of budgets, have wished for.

I actually think Saudi Arabia’s plan to wean its financial dependence on oil is a good one. From a common sense standpoint, a diversification of revenue sources could help the country weather oil price volatility better. However, I believe this process will take time. After all, petroleum wealth is what brought modern Saudi Arabia into being. And Saudi Arabia’s problems are not just due to low oil prices, but due to government spending. Not only has Saudi Arabia increased defense spending for its war in Yemen, but its spending on handouts and pensions for government employees totaled $32 billion in 2015. The fact that the Saudi Arabian government employs 90 percent of the population also means that its budget balance is highly sensitive to oil price fluctuations. Saudi Arabia will need to ensure it creates the right incentives for foreign investment and reducing state ownership to ensure its diversification plan succeeds.

Saudi Arabia’s plan is not just about diversifying revenue streams, but changing Saudi Arabia’s fundamental social structure. In exchange for oil wealth, Saudi Arabia’s citizens have pledged “popular submission to absolute monarchial rule,” Reuters reported on April 27.

The country has long controlled its population by sharing its oil wealth through subsidies and other offerings. But this wealth comes with a price: the oil curse, a phenomenon where oil wealth leads to authoritarianism, economic instability, corruption, and violent conflict, according to a 2011 article in Foreign Affairs by Michael L. Ross. Ross is a professor of political science at the University of California Los Angeles and author of the 2013 book, “The Oil Curse: How Petroleum Wealth Shapes the Development of Nations.”

The nationalization of oil assets in the 1960s and 1970s, rise of independent oil companies, and formation of OPEC resulted in oil wealth shifting from major oil companies to Middle Eastern governments. This shift allowed autocrats to come into and remain in power. For the citizens of these countries, this shift proved to be a mixed blessing, Ross notes. Autocrats used oil wealth not only to answer calls by its citizens for social change, but found it easier to keep their countries finances secret, and to lavishly fund their armed forces. This has halted progress towards democracy in Middle Eastern countries.

This trend holds true today, Ross told me in a recent interview. Countries with significant amounts of oil and gas wealth still tend not to democratize, particularly in the Middle East. The only country bucking this trend is Tunisia, which has little petroleum wealth.

Could Saudi Arabia’s announcement also lead to social changes, such as allowing women to drive? I asked Ross whether he thought Saudi Arabia’s announcement would result in a shift in its government. He told me that in countries where a large private sector exists, more space for civil society exists. The presence of a civil society allows for greater movement towards democratic freedoms.

“That said, it’s very difficult for countries with the kind of oil and gas wealth you see in the Gulf States to make significant progress towards economic diversification, particularly into private sector activities,” said Ross. “It’s easy for people to underestimate the obstacles created by the Dutch disease – the negative economic impact resulting from a sharp inflow of foreign currency, leading to currency appreciation that makes a country’s other products less price competitive for export — to economic diversification.”

It’s extremely expensive to produce things that could otherwise be imported and that are competitive internationally outside of oil and gas sector,” Ross told me. “The economic diversification in the traditional sense of developing new industries that can produce tradeable goods will be a very steep hill for Saudi Arabia to climb.”

On top of that, Saudi Arabia is a difficult place for the private sector right now, Ross noted. It would mean a pretty dramatic reorientation of the way the private sector operates there. In most cases, the time it takes for a drop in oil prices to impact at country politically varies depending on the countries. It depends on the size of the country’s stabilization funds or savings funds, Ross said.

To conclude, Saudi Arabia’s plan to diversify its economy is a needed step. I’m interested to see how it’s executed, and how it will reshape the not only its economy but its society.

 

 

Is Politics Behind Justice Department Thwarting Halliburton-Baker Hughes Deal?

by Deon Daugherty, Senior Editor

Under the banner of preserving the beleaguered oilfield services sector, the U.S. Department of Justice (DOJ) slapped a civil antitrust lawsuit to block the proposed Halliburton (NYSE: HAL) merger with Baker Hughes (NYSE: BHI).

The DOJ filed its lawsuit April 6 alleging that HAL’s acquisition of BHI – a $34 billion deal – would eliminate head-to-head competition in markets for 23 products or services used in both onshore and offshore oil exploration in the United States.

But while the union of HAL and BHI may be in jeopardy, another happy coupling is merrily chugging along in the oilfield services sector. Worth about $14.5 billion, SLB’s bid to buy CAM in 2015 sailed through the government’s hoops. The deal closed April 1.

Which brings us to a question that admittedly might have several, highly nuanced reasons: What’s holding up Halliburton and Baker Hughes?

I asked James West, a go-to analyst at Evercore ISI for his thoughts on what’s put the HAL/BHI deal on the backburner.

“I think it’s because there was no product overlap with CAM whereas with HAL/BHI there is significant overlap which requires divestitures,” he said. “We also can’t rule out some political overtones as this is Halliburton (read Dick Cheney) going up against a Democratic White House.”

The DOJ alleges that the HAL/BHI deal would raise prices and reduce innovation in the oilfield services industry. Halliburton and Baker Hughes are two of the three largest integrated oilfield service companies across the globe, and they compete to invent and sell products and services that are critical to energy exploration and production, Bill Baer, an assistant attorney general in the antitrust division, said in the statement.

“We need to maintain meaningful competitions in this important sector of our economy,” he said.

When we’re talking about “meaningful competition” in the oilfield services space, let’s be clear. It’s worth noting that in recent decades, the industry has known a “Big Four” among its ranks. As of April 26, Schlumberger’s (NYSE: SLB) market cap was $110.22 billion; next was HAL with $34.41 billion; then, BHI with $19.98 billion; and lastly, Cameron (NYSE: CAM) with $12.65 billion.

When the shale renaissance was in full swing, at least a couple hundred smaller companies set-up shop as oilfield services; according to Haynes and Boone LLP’s Oilfield Services Bankruptcy Tracker, 51 of those smaller oilfield service companies have gone belly-up. Competition didn’t do much for those folks.

In any event, Halliburton has pledged to vigorously defend itself.

In a joint statement with BHI, the HAL said, “The companies believe that the DOJ has reached the wrong conclusion in its assessment of the transaction and that its action is counterproductive, especially in the context of the challenges the U.S. and global energy industry are currently experiencing.”

But, recent events suggest the deal is fading farther from reality.

HAL has delayed its earnings call past its April 30 merger termination date. Before the DOJ announced its lawsuit, the date was March 1. Analysts at Raymond James and Associates (RayJa) said in an April 25 research note that earnings call dates typically yield little information, but this one doesn’t bode well for the merger.

“With the change in release date, we now think it is more likely that one party steps away from the deal,” the analysts wrote.