Industry Players Stress Collaboration at OTC Asia 2016

by Chee Yew Cheang, APAC Editor

Nobody expected a 60 percent decline in oil prices when the inaugural Offshore Technology Conference (OTC) Asia took off in Kuala Lumpur, Malaysia two years ago. But it did. And senior company executives who spoke at last month’s conference called for greater collaboration to help the industry emerge stronger from the current downturn.

OTC Asia

Malaysian Prime Minister Najib Razak speaking at OTC Asia 2016. Source: Rigzone

The significance of collaboration was a subject discussed in panel sessions at OTC Asia 2016, which attracted just over 20,000 visitors from 70 countries, around 20 percent lower than the 2014 event that drew 25,000 participants from 88 countries.

While oil and gas firms are still preoccupied with project cost reductions amid sharp cutbacks in capital and operational expenditures worldwide, panelists said the time has arrived for collaboration between operators and services contractors.

“Once misery arrives, everybody has to put mutual distrust aside and say, look, let’s stick together,” Mohd Anuar Taib, senior vice president for upstream Malaysia at state-owned Petroliam Nasional Berhad (PETRONAS) said.

Already, market watchers said project owners and contractors have stepped up engagement over the past year as the adverse effects of the downturn spread in the industry with more and more upstream projects being delayed.

But, industry player like France’s project management, engineering and construction firm Technip S.A. believed that such collaboration is proceeding too slowly. Technip’s CEO Thierry Pilenko said the existing shift in the industry mindset has not produced the sustainable solutions needed for the sector to significantly affect its cost curve.

“I understand that, in the very short term, all operators are doing what they have to do, which is trying to extract cost savings as quickly as they can. But, in many cases, those cost savings are absolutely not sustainable. If you’re starting to look at the way you work and the way you do the architecture of new developments, there is a real opportunity to reduced structural costs,” Pilenko said.

Industry collaboration could boost project efficiency in the present cost-sensitive market environment. To achieve this objective, involved parties must be willing to change their procedures.

“I would say in the current commodity environment that we’re having better discussions around what collaboration might look like and how it might reduce costs, but, at its heart, it needs to define an outcome that we can achieve as opposed to defining how we can achieve that outcome,” Jeffrey Miller, president and chief health, safety and environment officer at Halliburton Co., said.

Speaking as an operator, Bakheet al Katheeri, chief operating officer of Mubadala Petroleum, an Abu Dhabi-based oil and gas exploration and production firm with assets in the region, told OTC Asia 2016 participants that permanent solutions are required to curb industry costs in order for projects to be developed more efficiently.

“This requires being responsive, flexible and innovative in addressing costs, challenges and seeking out opportunities to adjust and thereby protect the value of our resources,” al Katheeri said.

In this regard, Mubadala has promoted the sharing of services and supplies for offshore operations, including facilities such as warehouses and office spaces, with other companies.

Meanwhile, the calls for industry collaboration has become a priority as investments in more upstream projects are delayed. Wood Mackenzie estimated that low oil prices could lead to more delays in oil and gas projects, with the investment value expected to rise to $500 billion this year, up from the previous projection of $400 billion.

“Will we get to half a trillion dollars in the course of this year? I won’t be surprised if we go that far,” Dan Young, Wood Mackenzie’s head of consulting for Asiapac said, adding that capital discipline and capital preservation are both acute pressures facing oil and gas companies.

Despite immense challenges facing the oil and gas industry, deepwater projects remain viable because of their high production rate per well, according to Royal Dutch Shell plc’s Upstream International Director Andy Brown, who added that such developments offer the most opportunities for owners and operators to deliver innovative technologies and keep costs down.

“It’s looking at the unit costs of these projects. We have to have projects that will deliver at the best. That is the important thing: our ability to be at the lowest cost on the overall cost curve and not be the marginal cost company,” Brown said.

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Searching For Talent in All the Wrong Places

by Valerie Jones, Careers Editor

I recently attended WorkforceNEXT’s (WFN) spring summit, a one-day conference focused on strategic HR and workforce management in the energy industry. I’ve attended several of their conferences and while I generally find all the sessions of interest, I especially enjoy the lunch sessions – no, it’s not because there’s food involved.

At least that’s not the only reason.

The lunches, which WFN describes as peer-to-peer roundtables, allow attendees to discuss energy hot topics of their choosing. I always steer to the talent acquisition tables because, well … that’s what interests me.

One lady I was speaking with was an HR professional in the recruiting space. I won’t publish her name or company – that’s not important. What’s important is what she told the table.

She said since the industry has slowed down, when clients come to her to find qualified candidates, at times, she wants to redirect them back to their own company.

“Sometimes, you’ll have those high potentials in your company already. Why not pay to have them get that one extra certification or upskill them so that they can fill the role?” she said. “I know it’s turning away money for me, but I’d rather be honest with them. That client relationship is more valuable to me than a few dollars.”

She made a good point. Employers often run to recruiters and staffing agencies in hopes of filling unique positions within their companies, but often don’t equip recruiters with the necessary tools to find the right fit – company culture, for instance, is something that should always be shared with recruiters, but often isn’t, she said.

And even worse is when an employer fails to recognize the talent within their own organization.

It shouldn’t take a downturn for a company to begin their succession planning, but if that’s the case, then now is definitely the time to do it.

Here’s how you can start:

  • Identify your high potentials – those who you expect to be your future leaders – within your organization
  • Take an inventory of the skillsets you currently have and determine where your future needs will be

It’s imperative to check your employees’ engagement levels. While most attention is focused on your high potentials and workers who don’t perform well, there’s a big chunk of your workforce (the “Steady Eddys” as one attendee refers to them) who consistently do good work but don’t make waves. Therefore, they may not be on your radar. But with the proper coaching, those employees could make great middle managers.

Use the downturn as a time to help your company plan for future success, by developing the right people for future roles. Don’t neglect the talent you have within your own organization. If you invest in your employees, the return on investment will be much greater because, let’s face it – sometimes the new hire just doesn’t work out.

And sometimes, it just takes a recruiter to tell you that during lunch.

Are Osborne’s UK Oil, Gas Tax Cuts Sufficient?

by Andreas Exarheas, Assistant European Editor

UK Chancellor of the Exchequer George Osborne announced significant tax cuts in his Budget speech March 16 to help the oil and gas sector, which he described as “one of the most important and valued industries” in the country.

Osborne’s latest measures, which follow the introduction of a new tax allowance intended to stimulate investment across the industry back in March 2015, include halving the supplementary charge on oil and gas to 10 percent and the effective scrapping of petroleum revenue tax. The changes will be backdated to Jan. 1 and will support jobs “right across Britain,” the chancellor said.

The oil and gas industry’s immediate reaction to Osborne’s tax changes has been somewhat mixed, with a significant number of organizations condemning the chancellor for not doing enough. As of April 1, Rigzone’s opinion poll on the efficacy of the cuts, which asked visitors if the changes were sufficient, revealed that 36 percent of respondents answered “no.” Twenty-nine percent of those who answered the poll believed Osborne’s cuts were sufficient and 36 percent were undecided.

One of the more outspoken critics of Osborne’s plans was Scottish National Party spokesperson for Energy and Climate Change Callum McCaig MP (Member of Parliament). McCaig said in an SNP release that “far more could have been done” for the oil and gas industry and accused the chancellor of sitting back and resting “on his laurels.” The MP claimed that Osborne lacked the “vision” to bring forward a “long-term strategy for the North Sea oil and gas industry” and said that he had “failed once again to introduce measures that would encourage exploration.” McCaig also said that the chancellor had failed “yet again” to bring forward any proposals on non-fiscal support, such as loan guarantees “which would help sustain investment in the sector and help companies to protect jobs.”

Another critic of Osborne’s changes was energy recruitment firm Airswift’s CEO Peter Searle. Although Searle admitted in a company statement that the tax cuts would go “some way” towards supporting the North Sea oil and gas sector, the CEO said that there was still a “major risk that the industry will continue to lose talent, skills and expertise to other sectors.” He remained unconvinced on whether the cuts would protect or create jobs for the North Sea.

Also, law firm Ashurst’s Energy Partner Michael Burns said  in an organization release that the government’s action “may be a case of too little, too late” and the firm’s Tax Partner Nicholas Gardner remained skeptical on whether the latest cuts “will be enough.”

IO Oil & Gas Consulting’s Director of Field Development Chris Freeman expressed his concerns over Osborne’s tax cuts too. In a company statement, Freeman took a swipe at the changes to the petroleum revenue tax saying this would only benefit the industry’s larger oil companies, and he would have rather seen the supplementary tax be “fully reduced to zero.”

Although a large portion of the industry contested Osborne’s changes, there were a few companies that saw the cuts as wholly positive. Some of the biggest supporters of the changes were UK offshore oil and gas industry body Oil & Gas UK, the Aberdeen & Grampian Chamber of Commerce and KPMG Aberdeen. The chief executive of the former association, Deirdre Michie, welcomed the measures, saying in an organization statement that they would boost the sector’s “competitiveness” and help to restore “investor confidence.” The AGCC’s Research & Policy Director, James Bream, also praised the changes, stating in an AGCC release that they would help to “build confidence” in the sector, and KPMG Aberdeen’s Senior Tax Partner Martin Findlay said in a KPMG statement that the cuts “will help to create a more attractive fiscal framework for this strategically significant industry”.

Oil and gas recruitment specialist Fircroft’s CEO Johnathan Johnson was another supporter of the cuts, saying in a company release that they will “help protect one of the jewels in the UK economy. Johnson saw the “highly encouraging” changes as a “long-term move to ensure the security of jobs,” going against those in the industry that claim the cuts won’t aid employment in the sector.

The industry seems split on whether or not Osborne has done enough to help the UK oil and gas industry in his latest Budget speech. While a number of oil and gas organizations have praised Osborne’s tax cuts and suggested that they are sufficient, a huge section of the sector, including the majority of Rigzone readers, believes that the changes did not go far enough. If the next 12 months reveals that the latter group was correct, Osborne could find himself having to do a lot more for the oil and gas industry in his 2017 budget speech.

Conservancy Group, Industry Spans Environmental Gap with Siting Tool

by Karen Boman, Senior Editor

Just like death and taxes, the only other certainty in life for the oil and gas industry appears to be increased environmental regulations and protests from environmental groups about their activities. From the Obama administration’s bilateral agreement with Canada that will seek to reduce methane emissions from the oil and gas industry, to the Bureau of Offshore Energy Management’s (BOEM) decision to update offshore air-quality monitoring regulations, oil and gas companies not only must grapple with low oil prices, but with increased regulations. BOEM’s recent central and eastern Gulf of Mexico lease sales drew protestors calling for an immediate end to offshore leasing and for a clean-up of Gulf of Mexico offshore infrastructure.

Oil and gas operators in Pennsylvania’s Marcellus shale play are also facing new regulations, which were finalized earlier this year by the state’s Department of Environmental Protection. These new regulations include more stringent rules around permitting, waste handling, water restoration and identifying old wells.

While the stringent regulations and protests by environmentalists aren’t surprising, one thing that surprised me recently was new software tool being developed to aid drillers and midstream companies. It’s not the tool, but rather, the fact that it’s being developed by a global conservation organization, that caught my eye.

The Nature Conversancy’s (TNC) new tool, EnSitu, an ARcGIS-based analytical software tool, allows oil and gas companies to identify surface infrastructure layouts within their acreage that let them balance development costs and environmental concerns. The idea for the tool, which has been in development since 2013, was born out of discussions between TNC and Marcellus shale players, according to the Marcellus Shale Coalition Quarterly Magazine’s Winter/Spring 2016 edition.

Four Marcellus operators participated in development of the software tool, along with TNC, the University of Tennessee at Knoxville and the Cadmus Group Inc. The tool was officially leased for beta testing in January 2015.

According to the Marcellus Quarterly, TNC’s goal with EnSitu is to provide operators with siting options for surface infrastructure that avoids and minimizes potential impacts on nature while accounting for financial and other constraints.

“When made early in the development planning process, improved siting decisions can be a valuable investment in risk reduction and regulatory compliance,” the Marcellus Quarterly reported.

EnSitu can generate alternative layout scenarios for surface infrastructure, using a sophisticated optimization algorithm and parameters set by the user, including pad dimensions, number of wells per pad and site-specific factors such as landowner preferences. It also can incorporate regulated setback distances in all states with shale operations currently within the Appalachian Basin, and include existing roads that could be improved and used for site access. This is typically less expensive than building new access roads. It also can conduct risk-ranking and trade-off assessment of various environmental and cost factors, incorporating but also going beyond regulatory requirements to reduce overall risk.

TNC is seeking patent and trademark protection for EnSitu. According to the Marcellus Quarterly, interest has been seen not only among Appalachian Basin operators, but by operators in other shale plays within the United States and internationally. As a result, TNC is now seeking an appropriate partnership to grow and maintain the tool for widespread use. These steps will be implemented in the coming months.

Having covered oil and gas for a number of years, I’m quite familiar with the rhetoric exchanged between the oil and gas industry and environmental groups – the former saying that environmental regulations will add costly, unnecessary regulations, the latter saying that regulations don’t go far enough. I don’t think the conversation should be an either-or discussion – we need both. Unfortunately, that’s an idea that has never seemed to catch on. Seeing a conservation group working with the oil and gas industry makes me wonder if there’s hope that the two groups can bridge the conversation gap.

 

US Presidential Candidate Bernie Sanders Is Tone Deaf on Fracking

by Deon Daugherty, Senior Editor

For all of the attention heaped on the shenanigans of the Republican contest to name a presidential nominee, the Democrats have escaped from criticism relatively unscathed. At least on the issues. Certainly on oil and gas concerns.

Let’s give them a moment, shall we?

During the Democrats’ debate March 6 in Michigan, an eager University of Michigan student laid out her view of fracking as a perilous practice. Then she asked the candidates if they supported fracking. From there, the dialogue went something like this:

Hillary Clinton: I don’t support it when any locality or any state is against it. I don’t support it when the release of methane or contamination of water is present. I don’t support it unless we can require that anybody who fracks has to tell us exactly what chemicals they are using. So by the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place.

*Subdued recognition from the crowd.

Bernie Sanders: My answer is a lot shorter. No, I do not support fracking.

Anderson Cooper: A number of Democratic governors say it can be done safely and it’s helping their economy. Are they wrong?

Bernie Sanders: Yes.

*Wild applause from the crowd.

Former Secretary of State Clinton’s response probably didn’t surprise anyone. She’s been holding onto the coattails of the Obama Administration, which many in oil and gas believe is attempting to regulate the industry to death. But at the very least, she gave the appearance of thinking about the issue and considering its relevance to locals.

The senator from Vermont? Not so much.

It’s easy to give a pithy, crowd-pleasing response when you refuse to delve into the details. But similar to Sen. Sanders’ other grandiose plans – each lacking a crucial component of “Where’s the money?” –telling those governors in oil-producing states not to depend on fracking comes with a cost.

According to the National Conference of State Legislatures, the cost could be around $846 billion – the total state tax collections during the heyday of the energy renaissance in 2013. Oil-and-gas producing states depend on that cash for things like public schools, criminal justice and health care.

Sanders’ has wooed mostly young, mostly white Americans with his pie-in-the-sky plans for free healthcare, free college and now, a world free of fracking. But his fracking position would make that wish list hard to fund because, kind-hearted as they probably are, those doctors and nurses, college professors and the utility companies that turn on the campuses’ lights, expect – probably, even need – to be paid.

On the few occasions he’s been pressed to provide details of how his ideas will be funded, Sanders is consistently brief. He will tax the wealthiest Americans. The problem with that logic – wherever you find yourself on the political spectrum – is that even the president of the United States cannot unilaterally raise taxes or otherwise alter the tax code. The Constitution’s checks-and-balances system precludes one politician from running amok. To that end, ask Obama what it’s like to try to order around a Republican Congress.

In the words of the possibly immortal Rolling Stones, “You can’t always get what you want.”

Good luck getting a rich-people tax through Majority Leader Mitch McConnell’s Senate and Speaker Paul Ryan’s House.

Asian NOCs: Not Immune to Pressure of Reducing Staff

by Chee Yew Cheang, APAC Editor

If you thought that only employees working for publicly listed oil and gas companies in the developed world were vulnerable to job losses in an industry downturn, just take a look at the signs that are now emerging in Asia, where national oil companies (NOC) are the dominant employers.

Last month, local media reports indicated that an oil and gas joint venture partially owned by a state-owned firm in Vietnam – one of Southeast Asia’s largest oil and gas producers after Indonesia and Malaysia – intends to trim its existing workforce by approximately 29 percent.

Vietsovpetro, the 51-49 joint venture between national oil company Vietnam Oil and Gas Group (PetroVietnam) and Russia’s OAO Zarubezhneft respectively, currently employs around 8,000 staff, according to its website.

The joint venture, established in 1981 to explore and produce Vietnam’s offshore petroleum resources, had already retrenched 600 employees over the past two years due to the downtrend in global oil prices that commenced in the second half of 2014.

Staff strength is expected to fall to less than 5,000 over the next five years if Vietsovpetro follows through on a proposal to reduce its manpower pool as mooted by Zabubezhneft as part of the joint venture’s ongoing restructuring efforts, company CEO Tuh Thanh Nghia told Nang Luong Moi, a newspaper of the Vietnam Petroleum Association, as quoted in Thanh Nien News Feb. 22.

The restructuring effort is particularly urgent as Vietsovpetro is facing a budget deficit of around $230 million, Nghia said in January, adding that the company’s financial situation has not improved despite numerous efforts to cut costs, including shutting down two of its subsidiaries and reducing 400 jobs.

According to Vietsovpetro’s CEO, the joint venture – which will be “running out of money” by the end of April – has suggested to its parent firms to shut down some of its oil fields, particularly those with high operating costs. However, the idea was rejected by PetroVietnam and Zarubezhneft.

Still, the state-owned company may have a change of heart about Vietsovpetro’s proposal to shut down production at some existing fields, especially if oil prices fall below $30 a barrel – a level that was breached on a few trading sessions in mid-January, PetroVietnam’s Vice President Do Chi Thanh said, as reported by Thanh Nien News Feb. 1.

Previously, Asian NOCs, such as Thailand’s PTT Exploration and Production Co. Pcl (PTTEP) and Malaysia’s Petroliam Nasional Berhad (PETRONAS) revealed a preference to retain permanent staff even as oil prices slipped lower.

However, after reporting a 56 percent annual decline in net profit for 2015, the Malaysian NOC announced the following day a “new business operating model for better business efficiency, resilience and sustainability amidst a challenging time for the oil and gas industry.”

“The new structure – designed for a flatter, leaner and more efficient business operating model – is a part of deliberate, sequential measures that PETRONAS is undertaking to better navigate the organization through tough external environments,” the firm said in a March 1 press release.

According to PETRONAS, the move will result in redundancies of under 1,000 positions.

“Exhaustive efforts are ongoing to redeploy affected employees. PETRONAS will further embark on a separation exercise for these employees as needed, which is expected to be completed over the next six months,” the company added.

Meanwhile, what’s happening in Asia on the job cuts is symptomatic of a bigger problem facing the global oil and gas industry. As low oil prices continue to cause a shrinkage in activities, companies are left in a quandary regarding their operational needs, especially manpower.

Oil and Gas: To Be or Not to Be in the Industry?

by Valerie Jones, Careers Editor

The environment of the oil and gas industry’s upstream sector has been something of a horror movie for the past year-and-a-half. Layoff numbers are in the hundreds of thousands with possibly more to come. In particular, oilfield services companies have suffered tremendously.

We hear, see and read the news every day. The industry’s in a downturn … and we don’t know where the bottom is.

But no matter how many times I read or write about the current state of the industry, there’s a certain cliché phrase that always seems to come up: “It’s cyclical.”

It seems as though those two words have served as a sense of reasoning – a reminder that, in all honesty, this too shall pass. But, try and tell that to 20-year petroleum engineer who got laid off six months ago and has yet to find another job in the industry. Knowing an industry is cyclical doesn’t mean one is immune to sour feelings when the industry is in the unfavorable part of the rotation.

Despite the current oil glut, there are some great reasons why the oil and gas industry is still a good career choice. And these are the reasons academia is trying to reiterate to young students. A solid background in STEM (science, technology, engineering and math) is often a precursor to a career in the oil and gas industry. For years now, the United States has made great efforts to increase the number of STEM graduates among minorities and women. Oil and gas companies have teamed up with schools and educators to do so.

And then there’s the many veteran oil and gas workers who are retiring or choosing to leave the industry, creating the need for more millennials to step up and fill roles as the backbone of the U.S. workforce transitions. Once the market recovers, new discoveries are made and drilling resumes, the industry hiring will pick back up – with a good chance many laid off employees will be given the opportunity to return to their jobs.

But are burgeoning oil and gas professionals receiving mixed messages? They’re told in school how much they’re needed in the industry, and yet many workers living through the downturn are saying run for the hills. Who’s right and who’s wrong? That’s not for me to determine. However, one consistent message seems like it would be the most beneficial. In any conversation with a student or worker early in their career regarding the oil and gas industry (I’m talking parents, professors, recruiters and industry vets), two truths should be stressed: 1) the reality of the current market – people are losing jobs, drilling contracts are getting cancelled, rigs are being stacked, and 2), it’s cyclical … and the market will recover.

It would be a disservice, misleading and downright unrealistic to describe the oil and gas industry in any other way. As long as there’s work in the field, there will be a need for workers, whether that’s today, tomorrow or next year.