Oil & Gas by Lyonsdown

February 2014

OIL & GAS

Exploring Africa Continent the stage for next great oil rush | Page 7

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Business Reporter · February 2014

Oil & gas

Opening shots René Carayol

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USED to host an investment summit in Monte Carlo, held each year just before the Monaco Grand Prix (tough work!). The attendees ranged from hedge-fund high rollers to proud Middle Eastern diplomats representing their sovereign wealth funds and, perhaps most strikingly of all, understated Norwegians representing their huge government pension fund. It remained a bit of a surprise to see these rather shy civil servants from Norway rubbing shoulders with some of the wealthiest fund managers around. It is instructive and timely to remind ourselves how these smart and inconspicuous Norwegians had arrived on this rarefied scene. It was of course triggered by the discovery of vast oil and gas deposits just offshore and fuelled by their prudent husbanding and long-term planning for the use of the copious revenues from these increasingly rare natural resources. They have punched above their weight, mainly due to their clear vision of the future for their oil revenues. It was all about making careful strategic investments, with the goal of enabling sustainable prosperity for generations to come. As a number of recent surveys have highlighted, we are experiencing a renaissance for oil and gas here in the UK. After years of a relative lack of investment,

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Why we should learn lessons in prudence from our friends in Norway especially in infrastructure, we are seeing a recent upsurge. This has meant the midstream sector, which includes the processing, storing, transporting and marketing of oil and gas, is experiencing a huge rise in initial development. It is now starting to catch up and match the upstream spending on exploration and development, which rose 46 per cent globally from $243billion in 2009 to $355billion in 2013. Spending on midstream capital also rose 263 per cent last year to £46.4billion. D ow n st rea m c apit a l spend i ng i s showing signs of improving too, increasing 11 per cent over the past year and 60 per cent from 2010. This all sounds like good news for the UK. However, the oil and gas industry is probably our most politicised sector apart from banking.

Follow us on twitter: @biznessreporter The UK oil boom of the 70s and 80s was driven by the huge oil deposits in the North Sea. Many would say the eyewatering revenues were squandered on highly political tax cuts to shore up the unpopularity of the then Thatcher government. Energy is again a political hot potato with the general election on the horizon. There is much inflamed debate around shale gas. The increasingly anti-business Labour party is opportunistically promising to be belligerent with the “unpopular” energy industry by committing to freeze prices – making the outlook very uncertain. This sabre-rattling is pushing the coalition government to respond with something populist and perhaps punitive towards the energy sector, enabling them to seen to be addressing the perceived high cost of living. This looks like another recipe for potential short-termism, with the danger of squandering our future yet again. We appear to be having to take many lessons from our Scandinavian friends: more women in the boardroom, far more effective welfare cover and even brilliant TV drama. But the unavoidable lesson must be prudence, aligned with a longterm view when it comes to using what could well be a final opportunity to use oil and gas revenues to help secure the wealth of future generations. It is high time for our leading politicians to stop gambling with all of our futures and be brave enough to think more about long-term legacy – and then perhaps we can also have understated UK civil servants in Monte Carlo.

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UK government urged to ‘maximise oil recovery’ THE UK must help oil and gas companies with exploration projects in the North Sea as well as encourage more people to work in the field in order for the sector to prosper. Last year, Sir Ian Wood was asked by Ed Davey, Secretary of State for Energy and Climate Change, to lead a review of the UK offshore oil and gas industry. The final report is due to be released soon. An interim report was issued late last year, which stated if recommendations were adopted it could create an additional £200billion to the UK economy. This included a new shared strategy for “maximising economic recovery (of oil and gas) for the UK”, with commitment from the government, HM Treasury, a new regulator and the oil and gas industry. Malcolm Webb, chief executive of the industry body Oil & Gas UK, says: “In our view, he has got the right prescription. You need to get the industry, the treasury and the Department of Energy – and a new and better resource regulator, frankly. “The challenge we face in the basin at the moment is that we must keep the projects moving into the hopper for development, and on that it is not all going well on the exploration side of the business.” Although capital investment is increasing in the North Sea, a report by oil and gas

Industry investing in other markets to raise cash

George Osborne visits a North Sea oil rig last September; inset: Malcolm Webb, Oil & Gas UK CEO

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Oil & gas

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research specialists Wood Mackenzie claims this has been set against the backdrop of project delays and production underperformance. Lindsay Wexelstein, head of UK Upstream Research for Wood Mackenzie, says: “Last year capital investment reached the highest level in real terms since the mid-1970s. We anticipate £21.3billion ($33billion) will be spent on capital investment across 2013 and 2014. “However, spiralling costs have put pressure on project economics and caused some developments, such as Bressay and Rosebank, to be put on hold. “Stretched resources have also led to project delays, and only 13 new fields were brought onstream in 2013, which was lower than the 21 expected at the start of the year.” Problems associated with worker shortages have led to further strain and financial pressures on the industry. John Scrimgeour, director of the Institute of Energy at the University of Aberdeen, says: “Work is not getting done because there is no one to do it, work is not getting done because of the scarcity and that is making it too expensive. “Because of the lack of sufficient numbers

of workers, that drives the salaries up. The cost base of the North Sea oil exploration production generally is high, and that is having an impact on the work that can be done offshore.” However, there are some silver linings. Oil and gas training and skills organisation OPITIO has begun working with the military to help personnel undertake transition training and gain jobs in the industry. This could increase personnel for the oil and gas industry. Wood Mackenzie reckons there could be some cautious optimism for 2014. The oil and gas specialist is forecasting 14 new fields for the year and believes the Wood Review could ultimately change how the industry is regulated. Webb says: “The UK total energy supply is almost three quarters comprised of oil and gas. If you look forward to the Department of Energy’s own projection to 2030 and beyond, you can see that oil and gas is still going to be the dominant part of the energy supply picture of the UK. “It is vitally important that we go on concentrating on getting our indigenous reserves of oil and gas – and that includes onshore as well as offshore – because we are certainly going to need it as a nation.”

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OIL AND gas companies are increasingly partnering up or using M&A activity to give them the cash firepower needed to explore new territories and enhance returns to shareholders. In the UK, deal activity is seen increasing in 2014, although this is on the back of low levels in 2013 as some of the larger players will continue to look to optimise their portfolio, according to oil and gas research firm Wood Mackenzie. Steven Bryan, partner at law firm Hogan Lovells, says: “Portfolio rebalancing will be a constant theme, and I don’t see that is going to change. Companies want to extend into different territories. It is also being driven by new finds as well as sometimes by new technologies. It makes things viable in terms of cost of extraction.” Another reason, says Bryan, is better “shareholder value” if the projects work out. Deal activity is expected to give the North Sea region, where performance has been lagging, a much-needed boost. Reports claim that there is still around 20 billion barrels of untapped oil and gas in the region and companies would like to gain

a foothold. In December last year, Hungarian oil and gas group Mol acquired 14 licences for offshore oil exploration and production in the North Sea from German BASF Group member Wintershall. And in Africa, companies wanting to increase their presence are using partnerships or M&A activity. A number of the discoveries in this region have been by smaller companies who took licences early on, and they are looking to transfer their assets to larger companies who have the balance sheets to develop these assets. Speaking at the African Oil & Gas Summit 2014 about the role of the juniors, executive director at Solo Oil Neil Ritson says: “What can be accomplished is to prove a play, to take enough data and do enough work to demonstrate that a geological idea is real. “But there is only so far you can take that. The next thing is you have to do is find partners, you have to find people who wish to carry the project beyond that early phase and have access to greater amounts of capital.”

opportunities and Investment in upstream oil and Gas Publisher Bradley Scheffer...............................info@lyonsdown.co.uk Editor Daniel Evans.............................................dan@lyonsdown.co.uk Production Editor Dan Geary .................d.geary@lyonsdown.co.uk Reporters...........................................Dave Baxter and Joanne Frearson Production Assistant Alexis Trinh.............alexis@lyonsdown.co.uk Project Manager Judith Flanagan..............judith@lyonsdown.co.uk

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Total grabs a slice of UK shale gas industry in Lincolnshire By Joanne Frearson and Dave Baxter THE UK government’s strategy to boost the economy by encouraging the production of shale gas in the country got some further support after French oil and gas major Total announced it was to enter the UK shale gas industry. Total in partnership with IGas, GP Energy, Egdon and eCorp will develop the Gainsborough Trough area in the East Midlands. IGas will be the operator of the initial exploration programme, with Total subsequently taking over as the project moves towards development. The UK government recently announced plans that councils can keep all business rates they collect from shale gas sites, double the current 50 per cent figure. However, the exploration of shale which involves hydraulic fracking has been the subject of much debate and controversy. It involves injecting a mixture of water, sand and chemicals into a wellbore, fracturing the rock to release gas. Protest groups have criticised fracking due to environmental concerns, worries about water pollution

Above: David Cameron visiting iGas’s fracking facility in Lincolnshire last year; right: the site attracted strong protests

“The rates on site in full production will be around £3m a year, so that is a material amount going directly to the local community – you will start seeing differences” Andrew Austin, CEO, iGas and earth tremors and say the 100 per cent business rate is a bribe. But Andrew Austin, chief executive officer at IGas, believes the project will be a big boost for the local community. He says: “The rates on a site in full production will be around £3million a year, so that is a material amount going directly to the local community. You will start seeing differences in people’s council tax bills, differences in the services people are able to receive locally as a consequence of shale gas being hosted in their area. “Aberdeen was completely transformed by the effects of the North Sea [oil] through the 1980s and 1990s. There is the opportunity for other parts of Britain to participate as being a centre of excellence for shale gas jobs. With every direct job you get indirect jobs as well and this has a knock on effect into the community. “In terms of how much gas is there, one of the partners in the licence estimated there is up to 13 trillion cubic feet of gas in the area.” Government plans for economic growth through shale has been attracting a number of players to the industry. In the US, the production

of shale gas has made a direct economic contribution to the country. A report by the Institute of Directors (IoD), called Getting Shale Gas Working, showed that US shale gas production in 2012 accounted for more than 600,000 jobs, paid more than $40billion in wages, generated $80billion in value added and paid almost $20billion in federal, state and local taxes. In the UK, the bigger companies are coming into invest sooner than the US. Michael Fallon, minister of state for Business and Energy, says: “There’s a double significance. First, it shows that companies are investing right here. The investors are the ones putting large amounts into it. You have Total but also companies such as Centrica to come in. “[Secondly], they are coming in at an earlier stage than in the US, where they let the smaller companies bear the upfront costs. They have come in at a much earlier stage which is very encouraging.” Despite government claims that fracking can be done safely and will benefit the community, there is a fair degree of public opposition. Anti-fracking groups have been protesting against IGas’s Barton Moss site in Salford. A January poll undertaken by YouGov and commissioned by the University of Nottingham suggests people were turning against fracking and this may represent an increasing sense of unease with the environmental implications of fracking techniques among the UK public. Austin says: “You need to split fracking into separate parts. The first question is should we be consuming [fossil fuels] at all and if we are consuming fossil fuels, we are better off consuming gas than coal. If we are going to consume gas we are better off consuming gas that is sourced close to home rather than importing it as the carbon footprint of importing it is significant.” The IoD report states that shale gas is benefiting the environment in two ways – by contributing to CO2 reductions through the displacement of coal, and by contributing to improved air quality through the displacement of both coal and oil. “The second question is, can it be done safely,” Austin says. “The fact that we can point to operating over 100 sites across the country right now successfully and safely and in harmony with our local communities helps us when we are talking about new and more challenging issues around the exploration of shale gas.” Hydraulic fracking is not new and has been used in the US commercially since 1949. Statistics in the IoD report shows that UK 200 onshore wells have already been fracked for conventional gas extraction – out of some 2,000 onshore wells in total. Worldwide, the total is around 1.1 million.

Fallon says: “We have had onshore drilling ever since 1919 and we have a very robust system of regulations in place to make sure it’s done safely. We have regulations to make sure it doesn’t damage the environment. “We have a robust system of regulation which we have had for years to make sure it will be done safely. We don’t think we can be accused of rushing it.” IGas has a strong history of production in the area. Austin says: “It is in some licences which neighbour existing fields which we operate at the moment, Gainsborough and Beckingham. We are producing significant amount of oil and gas in that area already from conventional resources. “We are operator of the licences on behalf of Total, from their perspective it was interesting to have someone operating in the exploratory stages who has got a history and a background in the area. Obviously Total has been a big investor across the North Sea and UK continental shelf, but it has not got a history of operating onshore in the UK whereas we have.” The exploration of shale gas is taking a bigger foothold in the UK. The advent of shale production in the US has been extremely successful and has done much to help boost the country’s economy. Although there is still much debate between groups about fracking, companies are starting to look to the UK to invest in the shale industry.

Business Reporter · February 2014

Oil & gas

By Joanne Frearson

ExpertInsight

RUSTRATED by the service he was getting from existing energy providers, Stephen Fitzpatrick decided he had enough. He was going to launch his own company, Ovo Energy, which would be able to give customers a better deal than what he had been experiencing. Fitzpatrick (inset below), who is passionate about providing his customers with cheaper prices and good service, says: “The customer experiences that I was having with various different suppliers were terrible. There was this big opportunity… if you could figure out a way to do it better then there was a real business opportunity. Once I started investigating I got a bit hooked.” Fitzpatrick has been working hard to give customers a fair deal, and the firm has made quite a name for itself since its launch in September 2009. The firm has managed to beat the Big Six in the Which? Switch energy satisfaction survey and is placed in the top five. He explains a lot of customers are disgruntled when they find out prices have gone up. Research from Citizens Advice has found that energy prices have risen by 34 per cent over the past three years – seven and a half times faster than earnings. “People are struggling to heat their homes and pay their energy bills,” he says. “It is a very important issue to millions and millions of people. It is a very real issue. We do not think anyone else can do it cheaper than us. “A lot of energy companies will have a teaser rate and people think they are getting a great deal, but it is a short-term discount, without them realising. “One day they look at their bill and they find out they are actually paying a lot more because the discount has expired and nobody has reminded them or told them. “That is one of the main reasons we think people do not trust the energy sector. Somewhere somebody has decided that if they have a certain structure of a discount and sooner or later it expire. Their

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How poor customer service inspired one man to set up his own energy supplier… margins will be higher without ever realising the price has gone up.” Fitzpatrick believes Ovo Energy is stepping apart from the larger energy firms with its philosophy of tackling problems from the customer point of view and being clear and upfront to them when it comes to prices. Ovo Energy is in the process of planning new initiatives to help give customers an even bigger savings on their energy bills. The company is about to launch a product to help them reduce their energy consumption. He says: “That is something that should be a big part in the discussion about energy more generally – how energy companies can both sell energy which everyone needs, but also use their knowledge and expertise to help customers use less. “Price is really important and we have been able to compete on this by being very careful to keep our costs down and using technology to be more efficient than the Big Six. We use a lot of computer systems that we have built ourselves. “We built our own trading and risk management systems – of course, the gas and electricity that you have to buy on the wholesale market is a big, big part of the cost the consumer ends up paying, maybe about 55 per

cent. If we can be a little bit more efficient that translates into quite a big advantage.” Ovo Energy’s trading systems are developed directly to trade with the wholesale markets so it does not have to go through any intermediaries. Since launch hundreds of thousands of people have decided to join Ovo Energy. Fitzpatrick uses internal data “to make sure that they are doing a good job to spot where things are going wrong in advance, before the customer starts to call up to enquire about it. It is the old saying that a stich in time saves nine. “Delivering better customer service is cheaper than delivering bad customer service because you end up not having to handle so many customer complaints, you do not have to make so many refunds. It really works for us to stay on top of any area before the customer starts getting involved, which makes it much more expensive.” Fitzpatrick’s dream of launching an energy company to tackle the problems people were facing by existing energy services is now a reality. From starting up as a small company in 2009, Ovo Energy is successfully competing against the large firms to give customers fair prices and good service. According to Fitzpatrick, it is not one thing that makes a difference, but all of them put together makes for one big change.

Flying the flag for Britain INDUSTRY VIEW

hese days the eyes of the world are back on the UK. The fears of UK peak oil are receding with new finds in the North Sea by Lundin, TAQA, and Faroe. Currently, offshore UK attracts most of the attention and investment funds. However, the industry is focusing back on the UK onshore, thanks to the high potential of hydraulic fracturing as well as a realisation that a lot more oil can be discovered and recovered from conventional UK onshore wells. Up until the early 1990s very little oil was produced from onshore UK. This was mainly due to the massive finds in the North Sea in the 1970s and 1980s using capital resources. Oil production increased, reaching approximately

45,000,000 million barrels in 1996, then declining, mainly due to well depletion and little exploration activity. However, the largest field, the BP Wytch farm field, had approximately 4.2 billion barrels prospective, giving investors an idea of the potential for UK onshore oil. Among the giant oil companies, such as Total, who are now reassessing the potential of the UK onshore, has stepped Union Jack Oil (UJO), a smaller, nimble company run by experienced industry hands David Bramhill, Joe O’Farrell, Martin Durham and Ray Godson. Its current strategy is to de-risk low-cost, high-potential interests, in partnership with much bigger players with a vision of growing the company organically through exploration and production. In practice this means finding assets so UJO can leverage its finances and then, in partnership with a consortium, drill. This means it has the potential upside of a large company, with a much lower cost base. A sign of faith in UJO is the fact that nearly 20 per cent of the shares are owned by management, meaning shareholder interests are their interests. UJO has partnered with Egdon Resources, a company which has been operating successfully in the UK for more than a decade, and whose share price recently tripled in less than two weeks

after Total took a £30million interest in some of its licences. From Egdon, UJO has acquired interests in four licences, all located in the hydrocarbon-proven East Midlands basin, notable for having more than 40 oil and gas fields in production. Having passed regulatory approval and planning permission, two wells are due to be drilled early this year, the Burton on the Wolds-1, and Wressle-1. The Burton on the Wolds-1 well is targeting a healthy 3.8 million barrels of oil, of which UJO will own 10 per cent if successful. On trend with producing Rempstone and Long Clawson oil fields,

this drill will be followed by the Wressle-1 well, located in Lincolnshire, the county where Total bought into Egdon’s licences. After these two high-profile wells, UJO is planning to participate in another two wells, again as part of a consortium, targeting 17.8 million barrels, of which UJO will own 10 per cent of any success. For a smaller oil explorer focused on the UK, Union Jack’s prospects look bright indeed. info@unionjackoil.com www.unionjackoil.com

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Clear strategy needed to mitigate oil hostage crises

African oil exploration is expanding, largely due to greater political stability on the continent

Africa: the sun rises on the next exploration hot spot Extractive industry is turning to the sub-Sahara, as reports forecast a huge rise in production By Joanne Frearson AFRICA has become a hot spot for oil and gas exploration. International oil and gas companies have been setting up shop in the region and discoveries are helping African nations to develop and support their local communities. Simon Ashby-Rudd (inset below), global head of oil and gas for Standard Bank, says: “Africa could be the bread basket of the world and is one of the most fertile continents in the world. From an oil investor’s point of view, Africa is the last untapped continent. “International oil companies are increasingly finding the world a smaller place. As a consequence these companies are looking at the last great continent, A f rica, which is relatively underexplored and represents opportunity. The oil industry has fallen in love with Africa in the last 10 years.” A report by BP says African energy production will grow by 47 per cent by 2035 and be dominated by oil. Supply from Africa will account for 10 per cent of global oil and 9 per cent of natural gas production in 2035. Progress is under way to create the structures needed to help their communities benefit from oil and gas discoveries. Ashby-Rudd says: “There is no doubt in the industry’s mind that the discoveries in Ethiopia,

Kenya, Uganda and South Sudan in the rift basin are only the first of many and the oil goes further south, so you will see exploration in Lake Tanganyika, Burundi, Rwanda, you will see exploration on the DRC side of Lake Albert.” On the African side of the Atlantic there is a belief in the industry that pre-salt structural traps [geological phenomena that could indicate the presence of oil] exist. “They have already found pre-salt discoveries in Angola, but they could go as far as Namibia and Gabon,” he says. “There will be a lot more exploration in that part of the world on the pre-salt. “There will be pipelines coming from the South out of South Sudan, coming from Uganda and Kenya down to the East African border. There will be LNG facilities built in Tanzania and Mozambique. Ghana will go from having one field jubilee to multiple fields with development of things like Tweneboa-EnyenraNtomme (TEN) and others.” Countries have been setting up their own national oil and gas companies to help support their local communities benefit from discoveries and give an economic lift to the region. Ashby-Rudd says: “There are more democracies in Africa then there have been in the past, and as a consequence an elected government needs to demonstrate economic growth in order to make sure it is elected the next time.

“Governments are passing local content laws requiring international investors to use local partners and local services. The laws have been passed in Nigeria and Angola and they are being looked at in Uganda and Mozambique and everywhere else. The role of the national oil companies is much more pivotal now than is has historically been. “National companies which are making a strong presence in the region are the Nigerian National Petroleum Corporation (NNPC) and Sonangol in Angola, but you also have seen the rise of ENH in Mozambique and the National Oil Company of Kenya (NOCK).” However, development is still in its early stages, and much infrastructure and regulations are still needed to be put in place in order for the region to reach its maximum potential. “The infrastructure within Africa has been underinvested in for many decades,” Ashby-Rudd says. “Road, rail, electricity systems and the ports are all challenges for Africa. In order to develop these assets a huge amount of investment needs to go into the infrastructure as well. “In many countries, they have no history of oil and gas and therefore they are being asked to invent an investment framework in a very short period of time. The domestic markets are growing fast, but are the investment environments correct? That is probably the biggest single risk for Africa.” Enormous potential exists for Africa in the oil and gas industry. The process of exploring a huge untapped region as a source for oil and gas is in motion. National companies have been formed and some local communities are benefiting, but it is still in its early stages.

OIL AND gas companies working in high-risk areas need to have an effective strategy in place to keep their staff safe and avoid possible threats such as kidnapping. “The oil and gas sector is often in the front line of these things,” said Roger Cartwright, corporate adviser at Dignity Hostage Survival Consultancy, at the Africa Oil & Gas Security Summit 2014. “The reality is hydrocarbons are found normally in places which are inconveniently located where there are existing conflicts.” Cartwright continued: “Even without conflict and issues, when hydrocarbons are found, the dynamics can change. It is also often the case, after hydrocarbons are found at a location, you can get various bad guys seeking to gain some control, some benefit. For example, in January 2013, the In Amenas gas extraction plant in Algeria was stormed by al-Qaeda terrorists and hostages were taken. This was a joint venture between Norway’s Statoil, Britain’s BP and the Algerian state company Sonatrach. During the standoff 39 foreign hostages and an Algerian security guard were killed. James Sisco, a director in the socio-cultural analysis division at GB Hawk, which undertakes stability and risk mitigation operations, said at the same conference: “In Algeria, in addition to the lost lives, damage to the infrastructure and lost production, it cost Statoil and BP around $8-9bn to their market capitalisations. “Executives now have a fiduciary obligation to their shareholders to engage local populations and communities to mitigate community-based production risk. When communities do not have an interest in the operations and the production of the facilities, the lives of the workers are at risk. “Companies can be welcomed or rejected depending on the relations they cultivate.” Sisco says if a positive approach to building relationships with communities is adopted, “even the most unstable, geopolitical environment can be improved” and “even in benign environments positive community relations can protect your investment”.

The Norwegian flag flies at half mast outside Statoil’s HQ after the Algerian hostage crisis

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By Joanne Frearson

VAST ice-covered ocean, largely inhospitable, located at the northernmost part of the Earth. In winter it plunges into darkness and temperatures drop to below 50 degrees Celsius. Only a short list of hardy plants and wildlife can survive. It is called the Arctic, a polar region in which eight Arctic states – Canada, Denmark (including Greenland and the Faroe Islands), Finland, Iceland, Norway, Russia, Sweden and the United States – have territory. And what lies beneath this vast ice-covered ocean is what some say could be the world’s greatest untapped natural oil and gas reserves. A report by Ernst & Young says the region above the Arctic Circle accounts for only about 6 per cent of the Earth’s surface area, but it could account for as much as 20 per cent of the world’s undiscovered, but recoverable, oil and natural gas resources. Exploration companies are starting to make their mark on the region. Energy giant Gazprom has been the first company in the world to launch an Arctic-class ice-resistant oil platform, Prirazlomnaya, in the Pechora Sea. Exploration in the Arctic is not without controversy, however. There are concerns about the possibility of oil spills as well as the impact drilling will have on the environment. Roger Howard (inset bottom right), writer on international relations and author of The Arctic Gold Rush: The New Race for Tomorrow’s Natural Resources, says: “Icebergs and severe weather conditions in general mean that the likelihood of such a spill is clearly significantly higher in the Arctic region. “It is not just that such risks of a spill are greater. Such conditions also mean that spillages are proportionately less likely to be detected. For example, it took workers three days to find the Proudhoe Bay spill in March 2006 – and such

Gazprom’s Prirazlomnaya stationary oil-drilling platform is one of the first major Russian projects to secure resources in the Arctic; above: the platform sits directly on the sea bed, in shallow 20-30m water – its sheer weight secures it in place and allows it to withstand moving ice

The Arctic Circle may prove to contain one of the world’s last major reserves of oil and gas. But the difficulty of extracting it, and environmental controversy, will make it no easy task gaps between the advent of such a spill and its discovery are all the more likely in such an inhospitable and inaccessible region.” Concerns about the environment have prompted groups such as Greenpeace’s Arctic 30 to protest against exploration in the region. Last year the Arctic 30 were arrested after a peaceful protect against Arctic drilling at Gazprom’s oil rig. They since have been released and charges have been dropped against them. Dr Professor Petter Wadhams, head of the Polar Ocean Physics Group at the University of Cambridge, has said in a report to the House of Commons that “the only way to avoid massive pollution of the Arctic” in the event of an oil spill “is to install a pre-engineered capping system to bring the well under control before the drillship is driven off station by winter conditions.

“If this is unsuccessful and oil continues to flow through the winter and impinges on a moving ice cover, it will be absorbed by the ice, a new layer of ice will grow beneath it, and the resulting ‘oil sandwich’ will be tens of hundreds of miles with the oil within it, undetectable and inaccessible.” Research is being undertaken to see how technologies can deal with oil spills. Late last year the US Coast Guard Research and Development Center (RDC) tested high tech equipment to evaluate an oil spill clean-up in the Arctic. Although freezing and challenging condit ions caused severa l equipment problems and delays during the evaluation period, the team was successful in deploying each of the five technologies. Full results are still yet to be released.

Howard believes disaster is more likely to strike when energy companies start cutting back on their safety procedures and equipment to save money. He explains this could happen when the price of oil falls and margins become tighter or if a company wants to get the work done quickly and cuts back on standard safety procedures.

he extreme climate and inhospitably of the Arctic may not make exploration of the region as profitable and as easy as people think. It may only be the areas which are near existing establishments which may prove worthwhile. Howard says: “There are certainly particular areas of the region that are commercially attractive and which will prove lucrative – for example, the ‘niche basins’ in the Kara Sea that not only hold large quantities of oil and gas but are located relatively close to existing infrastructure. “A good example is Russia’s Pechora Sea, since any newly discovered deposits would be close to the existing Prirazlomnoye field, and since it is also connected to Western markets along largely ice-free routes.” Other areas include America’s North Slope, which has been exploited since the late 1960s and where new fields are still found and can then be fed into the Trans-Alaska Pipeline system; and where the climate is less harsh. He says: “An oil spill in one of these relatively accessible ‘niche’ areas would of course be easier to respond to and deal with – although the consequences of such an eventuality in this ‘least bad’ scenario would still be horrendous. “But otherwise the difficulties of finding, exploiting and transporting to market both oil and gas in such a relatively inhospitable area may well prove prohibitive and a huge disappointment in the years ahead. A perfect illustration of such difficulties is the ill-fated Shtokman venture which has been dogged by serious delays and by constant cost overruns.” The plan of the Russian Shtokman project was to

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comes onto the global market and puts a downward pressure on prices. This is true of natural gas markets. This will make the Arctic region is even less attractive because of the higher extraction costs. “At one extreme there are some very high-risk opportunities – where petroleum deposits may not exist at all in any meaningful quantity and, if they, do where the presence of pack ice renders them inaccessible or commercially unviable. “At the other extreme are deposits which are certain to exist in commercial quantities, which are relatively accessible because of the relative lack of ice in seas that are afflicted only by limited seasonal ice; and where these deposits can be fed into existing infrastructure such as pipelines that already exist rather than ones that have to be specially built.” Lucrative areas closer to developed infrastructure exist and may be rewarding for firms with a presence in those areas. However, the hostile nature of t he A rc t ic may ma ke it s abundance of untapped oil and gas reserves harder to extract t ha n it m ight have been originally thought.

UK firm Cairn Energy’s Stena Don oil platform, off the coast of Greenland, was the target of Greenpeace protesters in 2010

develop a huge gas and condensate field at the Barents Sea shelf. Investment decisions on the project have been postponed several times. “What has made the Arctic region even less attractive has been the advent of shale oil and gas,” says Howard. “Commercial margins will be even tighter in the years ahead as more oil

So who owns the Arctic? USA

Canada

ov R

Russia on

To date, only Russia and Norway have made submissions to the UN Commission on the Limits of Continental Shelf, but Canada, Denmark and the US are likely to define their shelf limits in the near future. In fact, last December the Canadian government confirmed it had asked scientists to work on a submission to the UN that includes a claim to the Lomonosov Ridge, an undersea mountain range between Ellesmere Island, Canada’s most northern land mass, and Russia’s east Siberian coast. That claim would extend Canada’s territory 200 nautical miles beyond the North Pole. Michael Byers, an expert on Arctic and international law at the University of British Columbia, said: “We’re talking about a large, inhospitable ocean that is in total darkness for three months each year, thousands of miles from any port. The water is 12,000 feet deep and covered by sea ice in the winter. It’s not a place where anyone is going to be drilling for oil and gas. So it’s not about economic stakes, it’s about domestic politics.”

Confirmed boundaries Unconfirmed boundaries International waters Canadian claim

Lo m

THE POLITICAL – and economic – implications of who owns what in the Arctic came into focus back in August 2007 when the Russians sent a submarine to the top of the world to gather data in support of its claim that the North Pole is part of the Russian continental shelf. Unsurprisingly, the expedition prompted a hostile reaction and heated discussions over the resources and ownership of the Arctic. So far, all the Arctic states – Canada, Denmark (including Greenland and the Faroe Islands), Finland, Iceland, Norway, Russia, Sweden and the US – have followed the rules for establishing seabed jurisdiction set out in the 1982 UN Convention on the Law of the Sea Currently, Canada, Denmark, Norway, Russia and the US – the five countries with territories near the Arctic Circle – are allotted 200 nautical miles from their northern coasts. Under the UN convention, exclusive claims can be expanded for Arctic nations that can prove their part of the continental shelf extends beyond that zone.

Denmark Norway

Business Reporter · February 2014

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Inspector Dogberry

Career prospects for women in the oil and gas industry have improved in recent years and an increasing number are taking advantage of those opportuni-

ties, according to a report on global diversity in the sector. The study, conducted by both BP and Rigzone, shows the majority of energy professionals say it is quite or very important for the oil and gas industry to ensure it is attractive to women. More than 60 per cent say they expect the greatest increases in female representation to be among professionals just entering the industry and those early in their career. Kirsty Bashforth, group head of organisational effectiveness, BP, says: “We want women to

Dogberry loves chasing shiny objects, but is unlikely to be able to pursue the unmanned flying drone being used to recover oil reserves from the North Sea. Academics at the University of Aberdeen, in collaboration with the University of Bergen in Norway, are using remotely operated flying machines to scan rock formations in remote areas in order to better understand what lies beneath the surface and improve understanding of subsurface reservoirs. The drones consist of a gyroscopically stabilised body, typically with up to eight tiny motors with helicopter-style blades on ‘spider legs’ emitting from its centre. The vehicle used in the project costs around £10,000 and is remotely operated using radio controls and carries two cameras which allow it to collect stereo, 3D imagery. Twitter: @dogberryTweets

ExpertInsight

Oil & gas

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know that the oil and gas industry has made tremendous strides in recent years and that it offers opportunities not provided by other sectors. “While the industry acknowledges it still has work to do in terms of a gender-balanced pool of talent, the results of this survey demonstrate that industry initiatives and programs to engage women about careers in oil and gas are making an impact, and we need to keep focused for them to continue to do so.” Women represented around 32 per cent of BP’s hires last year.

The number of consumers switching energy deals hit an end of year high in 2013. New switching numbers, independently compiled by Electralink, show that around a million customers sought out energy deals in November and December last year. This compares with 3.5 million switches for the whole of 2013. Angela Knight, chief executive of Energy UK, says: “Increased switching is a welcome sign that the energy industry is becoming more competitive, clearer and working for its consumers. “Competition is alive and well with people choosing new entrants to the market and smaller suppliers rather than just sticking with established companies.”

Step on the gas A few months ago Dogberry became the proud owner of a driver’s licence, and when travelling in Brazil, will be filling up the car with the new regular and premium ultra-low-sulfur gasoline recently launched by Petrobras. The new product helps reduce gas pollutants emitted from the exhausts of engines manufactured after 2009 by up to 60 per cent for nitrogen oxides (NOx), 45 per cent for carbon monoxide (CO) and 55 per cent for hydrocarbons (HC). The fuel also has other benefits like low deposits forming on valves, fuel injectors

and within the combustion chamber. It also increases the performance and extends the life of the catalytic converter, reducing engine wear, plus the lubricant lasts longer, maintaining energy efficiency with lower maintenance costs.

By Matt Smith, web editor

u Editor’s pick Oil & Gas Technology blogs www.oilandgastechnology.net/ blogs Each post in Oil & Gas Technology’s blog section focuses on a different location or event within the industry, from opportunities for the pipeline sector in China to the lessons learned in offshore safety after the Piper Alpha disaster. Check through the archives to find columns written by industry experts.

The Fircroft Blog

Platts | The Barrel

www.fircroft.com/blog/optionoil-and-gas

http://blogs.platts.com/

Oil and gas recruitment services firm Fircroft’s blog is regularly updated with new articles and interviews from the industry. Stop by to read the team’s top predictions for 2014, analysis of the US industry, reports on emerging markets in oil and gas, and more.

Energy, metrochemical, metal, and agriculture information supplier Platts provides this feed of blog posts providing what it calls ‘the essential perspective on global energy’. The blog is updated nearly every day so there’s always something new to read about from the oil, gas, electricity, and coal industries.

Oil & Gas IQ www.oilandgasiq.com/articles/

Oil Price etc (Free – Android)

Oil And Gas Job Search (Free – iOS)

Stay up-to-date on world prices for oil, natural gas, and more, either in-app or as a widget on your home screen.

Looking for a job in the oil and gas industry? Oil And Gas Job Search brings you opportunities from around the world.

From features and event previews to interactive timelines covering major stories, Oil and Gas IQ provides insightful content for those interested in the industry. The site also hosts an online community, with a Q&A feature that allows members to seek advice from their peers, and expert webinars.

M2M solutions making a global difference Engineers can analyse issues immediately INDUSTRY VIEW

2M solutions are rapidly improving the oil and gas industry, with applications such as fiscal metering, security, quantity telemetry, drill, well and pipeline monitoring. In an industry where wireless is the only way to transfer data from inaccessible facilities in remote locations, there are many challenges that Eseye can help businesses overcome. The benefits of M2M solutions in the oil and gas industry include: • Improved health and safety for field staff • Increased reliability and efficiency due to reduced human error • Cost and resource efficiencies • Real-time data for instant analysis and fast decision-making

Eseye provided Gilbarco Veeder-Root, a global leader in fuel dispenser technology and integrated fuelling solutions, with failover solutions and continuity for its wet-stock management systems. Gilbarco Veeder-Root wanted reliable coverage and in-country roaming. Eseye’s multinetwork AnyNet SIM is a one-SIM solution that allows the development of cost-effective solutions to work with new products. Multi IMSI guarantees network reliability and flexibility, making the AnyNet SIM the perfect future-proof M2M connectivity solution. Unlike other M2M solutions providers who share an APN with consumer applications, Eseye’s own private APN is specifically for its M2M customers. Because Eseye has complete control of its APN, its engineers analyse and solve

customer issues immediately. Eseye was able to offer Gilbarco Veeder-Root a single point of contact and focus that only comes from a business that recognises the importance of customer support, while still possessing the vision and technical prowess to rival the largest telecom and M2M companies. Eseye believes in getting M2M right from the start through product design and development expertise, reliable connectivity and exceptional technical support. The largest supplier of embedded SIMs for M2M solutions, with enabled applications in 84 countries, Eseye gives a truly global M2M service. Speak to an Eseye expert today, because your data deserves better. enquiries@eseye.com www.eseye.com

Business Reporter · February 2014

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Oil & gas

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importer to a fairly balanced position by 2030. From 2010 to 2040, unconventional gas production in North America is expected to grow by around 65 billion cubic feet per day, which is about the size of total US gas production today. This abundant supply is expected to enable North America to shift from a net importer.

Looking the part The industry is no longer just about trailblazing resource sites – exploration must come with safeguards if the money men are to part with their cash

China

Bolivia

Repsol has begun production at the largest gas well in the history of Bolivia, Margarita 6. The Margarita 6 well in the south of Bolivia produces around six million cubic metres of gas a day and has become the most productive well in the country and of the whole sub-Andean basin. Margarita 6 belongs to the second phase of the Margarita-Huacaya project, whose production has increased to 15 million m3 of gas a day, equivalent to 20 per cent of Spain’s daily consumption. The Margarita-Huacaya project is one of ten key projects of Repsol’s 2012-2016 strategic plan.

Northern China will see residential winter gas demand this year increase up to tenfold from non-peak requirements in some cities, according to research consultancy Wood MacKenzie. Wood Mackenzie says China will be forced to rely more on the spot market due to limitations in domestic production and contracted supply. Gavin Thompson, head of Asia Pacific gas and power analysis at Wood MacKenzie, says: “Winter gas shortages will be exacerbated through to 2020 as seasonal demand growth in northern China increases at an annualised rate of approximately 16 per cent per annum.”

OR THOSE wanting to capture some of the fortunes of oil and gas companies, investing in the stock market could be the way forward. But investors need to see more than just exploration potential to plough their money into the oil and gas sector – and according to the experts, it is all about finding firms which have strong balance sheets and cash flows that can fund their operations. Robin Batchelor (inset, opposite), joint chief investment officer of the Natural Resources Equity team within BlackRock’s EME A fundamental equity portfolio management group, says: “There was a lack of exploration success last year. Some people have notable success, but other people did not have any success. “Companies that focus on exploration need to be cautious. They need to be less gung ho. They need to make sure they have balance sheet strength or partner with others that do. The days of stock market investors being open to companies that are refinancing that back of exploration potential are no longer here. “People are being more realistic about the

United States

North American liquids production is expected to rise by more than 40 per cent from 2010 to 2040, boosted by gains in oil sands, tight oil and natural gas liquids (NGLs), according to Exxon Mobil’s energy outlook. With production rising and demand falling, North America is expected to shift from a significant crude oil

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startup Curaçao, where a been stock exchange has running since summer

p The Caribbean startu exchange that could give SMEs a boost

most FTSE I think is more than attending, which the share issue met process of ensuring companies.” The cripplingly standards was almost moment for high transparency into a make-or-break funding was expensive, and turned a danger with crowd the company. “I think crowd funding Watt says. “A lot of a lack of regulation,” a grey area. schemes are still in and spent future on this work £35,000 “We gambled our An audit costs about £150,000 (on regulation). documents (for the a legal review of the and then there is lighter. burden should be share issue). The have the same company in our “People investing as investing in a FTSE protections and regulations the statements that’s powerful, that company. We think

Responsible extraction

The big interview Clare Short

By Dave Baxter

responsibility for the contents

People will be able to hold their governments to account. But we need to do more

and bedraggled thanks to a wrong turn and a sudden downpour on the way. I try hard to protest – it was only a couple of minutes at first, and then I couldn’t find her in the reception upstairs – but short is having none of it. “I don’t believe you,” she tells me. For some reason this makes me laugh, but she is deadly serious. “I’m not joking. the rain is fresh on your shoulder, young man,” she replies, stonily. with that, I’m sheepishly sent to get a coffee. short already has one. we are sitting in Central Hall westminster where short will later attend a conference, and so far I haven’t done her justice. the ex-mP can be formidable at times – she bats away my excuses and is keen to get to the meat of the interview – but there is a softer side, and a stoicism, to her. since standing down from Parliament in 2010 after 27 years as an mP, short is never far from the social causes which still seem to drive her. this includes work on the conflict between Israel and Palestine, humanitarian action in Africa and helping was the problem that the companies were the companies destitute asylum-seekers. As her being accused of being website hardly paying anything [to governments]. disastrous and puts it, her “major preoccupation” monsters want to show that is the “It took some years until there need for greater transparency was they do pay. and agreement there should be some basic rules accountability in the developing world “And civic society, they want anything when and they should subject themselves to to be managed well it comes to oil, gas and mining and the but for the proceeds to funds transparency. these generate. go to poor people.” “It’s quite interesting, because I think the short chairs the international board In a sector where things can go badly for three parties [governments, companies the extractive Industries transparency and wrong – the Democratic Republic of Congo civic society] agree. the governments want (DRC), for example, has Initiative (eItI), a standard used huge natural for a good reputation so they attract investment. resources but is dogged monitoring company payments by corruption and and government revenues from oil, gas and mining projects in developing countries. the scheme involves the publishing of ‘Companies were figures to show, for example, how much money a government has received from a hardly paying mining company operating in a particular country. anything to this work ties in with her experience as government. It secretary for International Development from the beginning of tony Blair’s took years until we government to 2003, when her focus was on the poorer parts of the world. agreed there should “I was in government when the idea [of be basic rules’ the eItI] was first mooted. It started in 2000-ish or the late Nineties, when the commodity boom started,” she says. “there

BROADCASTING Business Reporter · february 2014

Broadcasting

Opening shots René Carayol

bloody conflict – eItI has enjoyed a solid take-up so far. Five years in, around 40 nations and more than 80 companies are involved. short doesn’t fail to mention this. But she also wavers slightly when asked about eItI’s achievements, as if she is unconvinced enough has been done. “After five years of being operational, we have strengthened our stance. simply producing lots of figures that are clear stops some bad prac t ice a nd i mprove s transparency,” she says. “I’m not saying having produced [the figures] isn’t an achievement. this whole sector used to be extremely murky. It’s now become normal to expect transparency. “everybody has agreed that governments will be more accountable. People will be able to hold their governments to account. But we need to do more independent to make the report reportinglyonsdown, from of the figures accessible, so the people know [what the situation is].” short believes more can be done to make these figures easy for populations to digest. But it isn’t all bad news. she argues that just having the figures available can make people

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traditional broadcasters or telecoms men. They know each other well, having worked together at Procter & Gamble. They will not respect precedence or any traditional rules of engagement and will back themselves to the hilt. They are locked in a Herculean struggle S Sky prepares to mark its for the valuable “triple play” – customers 25th anniversary perhaps it who buy phone, broadband and TV products may not be the celebration together. They are using expensive top-flight that it had hoped for. After football as bait, in what may well be years of dominance, mauling a defining broadcasting confrontation. the likes of Setanta and ESPN, and showing BT’s £897million bid for Champions a clean pair of heels to the terrestrial players League rights blew both Sky and ITV out such as ITV, it is at long last facing its first of the water. Everyone expected competition real competitive threat in BT. but not many foresaw BT’s buccaneering BT entered the pay TV marketplace, approach, bidding more than double initially to protect the growing threat the to its previous fee. broadband business from the likes of Sky. BT took the market by storm, becoming It is now beginning to look like a serious the first single Uk broadcaster to own all broadcaster and fearsome long-term live rights to the f lagship European competitor that will not be deterred. Champions League; they are in play now With the rapid convergence of the media and cannot afford to back down. BT has forward the next auction to and telecoms sectors, other large this year, instead players already acquired two million TV subscribers of 2015, enabling are starting to sniff around the lucrative it to capitalise upon the for its new sports channel. spoils to be had from the broadcasting expected feeding frenzy. Despite its formidable adversary, Sky shake-up here in the Uk. is This all kicked off because BT, keeping very much alive and kicking with revenues Vodafone made £84billion from the a mindful and covetous eye on its sale of £6billion a year and 10.5 seven million TV million broadband customers, of its stake in Verizon Wireless, and was provoked there subscribers in the Uk. The broadcaster has by Sky becoming are strong rumours that the cash-rich the second-biggest Uk a lot to play for and with £300million company could partner with either broadband provider with around five Sky or earmarked for the failed Champions million League customers, despite only BT – or more explosively, it could entering the fray acquire bid in the coffers, watch this space. either of them. in 2006. This looks like a fight to the death The Premier League smells blood in the between the previously all-conquering Its 25th year will be a crucial one for Sky, pay TV battle. BT and Sky paid Sky a staggering and a newly belligerent as an assertive BT is the first broadcaster BT, which now £3billion between them for the rights with pockets as deep as its and a to has former Sky CEO Tony Ball CEO, in broadcast live Premier as a nonLeague matches; executive director. Gavin Patterson, who appears to be just as this was an incredible 70 per cent increase aggressive and risk-embracing. Patterson Who would have thought the nimble on the 2009 auction. Consequently, and Jeremy Darroch, CEO of Sky, the and aggressive Sky would be outmanoeuvred are not canny Premier League may well bring by the ex-public sector telecoms giant, once

Business Reporter · october 2013

Responsible extraction

House of Commons, it’s hard not to ask if she misses life as an mP. “People ask me whet her I miss westminster, but I don’t,” she says, shaking her head. “I did 27 years as an mP. I’m a sixties kid – I graduated in 1968. “ P e o ple s ay t h at i f y ou h ave “my generation thought we had to transparency, you can stop it. In work these very hard but you could make the world countries there are always journalists free and and fair and help people get the benefits lawyers and activists. the people might we not have had, of full employment, the health read the eItI reports, but they will know. service and women’s rights. Politics smartphones are everywhere.” was noble and about making the world safer. what else could be done? short mentions “I’m afraid people don’t think politics those nations getting a “tiny” share is of noble now. Obviously Iraq [which led revenues because companies use tax to her havens. resigning as a minister] was big for me, she also notes that when revenues do come because the Labour party didn’t hold in, they need to be managed well tony to help Blair to account for the way he led everybody those in poverty. astray. she says: “On the back of the commodity “I was a Catholic, but you realise the boom, growth in Africa has been better Pope in says you can’t have contraception and the last 10 years. It’s significant because that’s of it. I lapsed again, this time with faith in the commodity boom, but inequality has politics, after Iraq.” grown, particularly in mining countries. Despite this, short is upbeat and has not “the proceeds of this, done well, could given up on changing the world. she lift hundreds of thousands of people tells out of me British people are “very lucky” to have poverty. But managed badly, it moves people such high living standards and talks zealously to [a situation similar to that in] the about global issues until time is up. “As you Democratic Republic of the Congo.” can see, I’m still passionate about it,” she From projects in Birmingham, where she says. once served as a politician, to her work in short will serve a second, three-year A f r ic a, shor t ’s p o st-we s t m term i n ste r chairing the eItI and has no plans beyond reincarnation is taking her around the globe. that so far. As much as she dislikes tardiness, But, as we are just ten minutes from the it seems she has bigger problems to solve.

The firebrand ex-Labour MP is fighting for greater industry transparency through the EITI

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a tiring people and go through the other And on it has always process of meetings. For well-known firms, to run your float your shares side, you are trying been a possibility: without losing business. as a way to raise capital knows they It’s an option “often, the investor control of the business. under their the risk of giving have you somewhat that can neatly avoid are desperate to a handful of control, because you up too much power you can’t really large sums for that money, and investors, while raising to your needs.” hungry for set terms more specific of money for a business while the Haet says that expansion. and royal on the exchange companies floating recently, both Twitter are beyond the and successful, are young, they Mail held popular, Going of business, stages (IPos). earliest, embryonic Initial Public offerings incubator in fashion. such as being in business public may be back exchange threadbare times programmes or the But because stock earnings rely on friends when some founders investors expect reliable changes “We would to and family for support. and a certain resilience has long and quite postthis a narrow spectrum say that we are post-accelerator, and in market conditions, but that was quite beers we want dream for Main image: want to be making incubator and post-friends to be if he ever been an unattainable conservative. We James Watt “We want HEN I ask James Watt a proven track family,” Haet says. geeky notes smaller firms without to drink ourselves.” (right) with cofuture mapped out, you have built a toured pubs, making for the future. at that stage when founder Martin he roars with BrewDog has an ambitious foreign expansion and record or a set roadmap As about different ales, bit of traction.” equipment, Dickie; Below: product and got a That may be changing.less quite deny it. including new bars, costs money, it requires laughter but doesn’t But all this growth to newer, Watt sampling Like other exchanges, has been investors warm but it was even a beer academy. his wares at to float shares to lend, the company “I didn’t take notes, of financing, wanting reluctant methods banks notes. companies conventional taking and with of funds. BrewDog’s checks and he says. “I stopped shares in business alternative source near to undergo due diligence you are doing, Business reasonably geeky,” launched the idea of floating facility Reporter forced to seek an progress to to gather context. It’s whatever scheme, which first · october 2013 Aberdeen make reports on their A good beer’s about The Equity for Punks minnows has begun gives people the to at the time. is not set against on its third round, an independent report from investors. And Haet or what you are listening hoppy taste of an IPA. momentum. in 2009 and is now including product lyonsdown, distributed with of verified.” perks raise been to the mainstream with abound have aims want more I the equity, sunday of telegraph “Sometimes the world In Germany, rumours phase of funding Annual so acidic that opportunity to buy report from lyonsdown, distributed successful plans to The company’s thirdan independent a Belgian beer that’s commercial Find us online: business-reporter.co.uk industry invitation to the company’s andthe sunday telegraph finance. He believes Sometimes I want governmentwith believes that, beyond discounts and an Follow us on twitter: @biznessreporter the floating the eventually move £4million. But Watt (AGM). and to put pressure on companies could my face screws up.” set up a stock exchange mission isLike General Meeting us: facebook.com/business-reporter bank loan, two humans by the much of the company’s exchanges. his favourite success, BrewDog’s possibly Find of new firms, us online: business-reporter.co.uk It began with “a £20,000 six months spent selling with to bigger, high-profile have “bastardised” The scheme has financed shares who problems we from by beer companies followed bigger says it stems on the Caribbean really good “People have to understand is one dog” in 2007, middle of 2014. And “The UK has got a years later BrewDog, expansion. But Watt else. This of a van. Six long beverage. He says: a start-up stock more than anything got a heritage are focusing on start-ups. up together, beer from the back island of Curaçao, “our business traditional lenders that dynamic. It has but Martin Dickie set scene, but it’s not running since frustration,” he says. enough to push the somewhat like crowdfunding, which Watt and partner the UK drinks industry. bottling “It was born out of exchange has been haven’t felt brave in We need tanks and and the controls.” tradition, but they the frustrations a tight spectrum. with the regulation among punters has a growing presence summer, inspired by conservative and is quite capital intensive. for has made its name which makes boundaries. It’s very Ian Haet as an equipment. by the big companies well as Boot Camp Foods, The Scottish brewer Equity of its co-founder machines and other at as across Britain, as aimed “Beer has been bastardised it into a lowest common When we first used Clare Short investors. (left) a nutritional shake and hipster beer aficionados “How can we expand? from Diageo to entrepreneur seeking have turned sadasdasdasdasdasdasdasd demand for our lose is campaigning help people some major names, it has a group far too long. They there was so much status of beer. took offence stemming hunger to Like FTSE or AIM, trading blows with for Punks in 2009, want to elevate the banks are refusing UK indusforfirst Authority, which greater the denominator. We choose to buy expand when the it’s not about weight, plans to become tryintransparency. the Advertising Standards BrewDog’s website. of investors who can guys advertising, brands. How do you reasonable amounts 2014. on “If you look at the for beer on the exchange. looking to borrow as firm to float on the exchange, at some fruity language or sell shares floated to lend? We were traditional advertising left) at track record of has become known founders, the(Below the founders a beer. It feels like spend. They’re not no security and no David Cox, one of the ICAHD In this vein, the company Haet (inset), one of involving how much you can of money but had marketing stunts appeals to me, Exchange, companies is about are selling a lifestyle.” as for says: “Crowdfunding conference much for its outlandish of The Startup Stock running a business.” has in around the banks costumes to tanks, beer any more. They far, There so going releasing selling penguin IPos for similar. just from two quite March; (right) been criticised and this is props, ranging For many entrepreneurs, with investors hungry for which has hosted for wealthy hoppy beer. BrewDog has previously spirits, such as its 32 per meet the needs haggling been a lot of opportunityas Secretary of its heavily flavoured, as some BrewDog’s trendy says he wants to help becomes a case of the But BrewDog’s founders a profitable in State evening, sitting in outside the beers nearly as strong for InternaBut Watt believes really And on a Monday a chunk of the company. individuals to invest of the of smaller companies Nuclear Penguin. a big is the alsoDeveloptional the company’s “captain”, risk losing control hubs. cent ABV Tactical start-up, but there’s were unwilling to and to alcohol in general, Shoreditch bar, Watt, better-known startup drink, the to the to ment the during people in attitude for built. gap UK’s opportunity Blair business they had “There’s a tremendous comes into his own. explaining, at years It also for Punks model is he says. we meet that he’s bigger issue. businesses,” he come in at lower levels. “We think the Equity It’s not long after the right educating and informing,”you funding of smaller business than venture tipple, Dogma, is “With us, it’s about true outside brings a level of disclosure better for a smaller something, the more length, why our current says. “That’s especially Soon he’s getting Watt says. “We traded.” autumn evening. “The more you appreciate or other investment,” Valley or New York. because it’s publicly finance Silicon s of we repeatedly, meet, investors area choice for the chilly me, Clare the other short telling goes and service, alcohol. for smaller good beer and respect it. Like the firms they spoke to private equity relationship with through a series of manoeuvres “We built a system evangelical about British beer. are in their conditions. $100,000 drink and “The UK has a horrible corporates ruining but we didn’t like start-up stock exchanges about the “faceless” to acknowledge me, as if she’s r line, an businesses worth between the status of our favourite not being masters of our the miniit’s a polished Pr We want to elevate and are looking for “We wanted to be their early stages. But It’s hard to tell whether better, responsibly, and $5million. If you checking exactly what I am. in a set. We thought, to stay. have people drinking a full-time job. destiny, not puppets FTSE could be here obsession, or both. investment, that’s we make with Down come the massive pink but we knew each such a toll on society. not involve the beers like it – not up a network of “We set up in 2007, beer because you You have to build folds of the Financial Times which, clutched why people who enjoy them? “You should drink Watt says. “our hobby the to get drunk.” other for 20 years,” party. your job and want with both hands in front of her face, We couldn’t find any “The AGM is an epic because you hate almost was making beers. things, but demand more from governments bury short from sight. Her eyes spent time making We do the legitimate and move beers we liked and 10 hours of beer companies. upwards, taking me in unhurriedly, after that we have before beers in the garden. and awesome “the DRC has started to report by the UK beer shifting down to the watch on her wrist tastings, live music the “We were frustrated and people numbers so far. the amounts going food. We have 2,500 back up to my face, with a rather unimpressed damaged to the back then. It was government are pathetic. the poor old look. I am late. people by the faceless, monolithic ale, was real remember,” she says. It’s certainly a bad start. I am drenched companies. There

3’0’’

DistributeD within the

DistributeD with

to has gone from strength nt brewery BrewDogto its innovative “Equity for Scottish independe years, partly thanks to co-founder James Watt strength in recent Dave Baxter talks Punks” finance model.

3’6’’

Winning ways: Sir Clive Woodward hoists the William Webb Ellis trophy in 2003

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· December 2013

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This looks like a fight to the death between the all-conquering Sky and a newly belligerent BT seen as far too slow and inward-looking? These are exciting t i me s, w it h Sk y unner ved and starting to act like a rather complacent telecoms house, and BT like a fast-moving broadcasting start-up. High spending will be inevitable, but at what cost? Who will blink first? The only guaranteed winner when there is such whitehot competition is the consumer.

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risks inherent in exploration and requiring companies to have a more sustainable exploration plan. That allows them to cope with initial disappointment in a basin and to be able to continue to operate and not run out of money. “I think that is a big change from the past, when exploration was seen as something the market would pay up for and would back. I would say now that exploration appetite has reduced.” One area which BlackRock sees as having lots of exploration potential is in East and Central Africa. Batchelor does not think this potential is yet reflected in the valuation of companies operating in these regions. “Africa is an interesting area for us as a whole,” says Batchelor. “There are some interesting developments going on in onshore Kenya. We are exposed to those. There is the potential there for some significant resource to be discovered which can be monetised relatively quickly, unlike an offshore gas discovery that requires many years of investment. “You can typically monetise onshore oil much more quickly. That helps your return profile. That is an area we are looking at. “Then you move onto West Africa, along the Transform Margin,” he says. “There has been limited success, but there is some additional drilling to come this year further down South West

Africa in Gabon and Angola. There is some interesting work there. “Then up to North West Africa – there are a lot of companies doing a lot of work drilling in Morocco this year. Morocco has become a bit of a hot spot as far as the companies have been concerned and there has been a lot of joint-venture activity. But it is a bit early yet to see whether or not that is a good plan. Batchelor favours “companies that are able to recycle their money out of one asset and redeploy it into other areas which have high returns. Not every company has that portfolio and not every company has been able to monetise assets. “Other things we are interested is the theme of renewed capital discipline. That typically is starting to unfold into the supermajors and the larger oil companies. There is some increase shareholder pressure or attention to this question.” The supermajors Shell and Chevron are among the top 10 positions in the BlackRock World Energy fund portfolio. Overall, BlackRock is taking a balanced view of the market. In the gas markets Batchelor sees potential in US shale. He says: “If you are a US shale company it is all about reserve growth and production growth from new plays that have a lot of room to grow. I was out in the Permian basin last

Texas’s Permian basin will be the next high-yielding shale area in the US

year in Texas. In the Permian basin there are companies that have a lot of acreage and are realising now that by implementing horizontal drilling and hydraulic fracturing, some previously known reserves could be monetised with some high returns. “The Permian basin is probably the next US shale area to show the most significant growth in production over the next few years. That is an area where we are interested.”

African adventures go west Advanced seismic imaging key to successful exploration INDUSTRY VIEW

pstream activity in offshore West Africa has flourished in recent years since the first oil and gas explorations carried out in the deepwater Congo basin more than 50 years ago. In fact, the region has become one of the most important areas in the world for the exploration and production of oil and natural gas. Interest from oil and gas companies worldwide in the West African region has highlighted the growing focus on what are known as pre-salt plays, which have emerged as one of the most promising frontiers of oil exploration. Pre-salt formations are geological layers that were laid down before a thick salt layer accumulated above them during the break-up of the super continent, Gondwana. In fact, evidence shows there is an almost perfect symmetry between the pre-salt geology of West Africa when compared with that of Brazil. Around 120 million years ago both continents were part of Gondwana, which was split by the Atlantic, and left very similar coastal sediment on both sides of the ocean. This has led geologists to believe the oil deposits found in the Brazilian pre-salt layer could be mirrored on the other side of the ocean in West Africa. With this in mind, Repsol is one company to have invested considerably in the West African region over the last 10 years, with plans to continue drilling in

areas such as Angola, Namibia, Sierra Leone, Gabon and Liberia during 2014 using its proprietary Kaleidoscope technology. This technology was launched in 2006 and put to work in 2008 in Brazil and the Gulf of Mexico using sophisticated seismic imaging to allow Repsol to reach oil located at water depths of more than 2,000m (6,560ft). The Kaleidoscope Project features one of the world’s most powerful supercomputers, the MareNostrum, developed in partnership with the Barcelona Supercomputing Centre, that manages complex mathematical algorithms to create seismic images needed to see below the earth’s surface and to ensure that wells are properly positioned before drilling begins. The project has enabled the company to stay ahead of the competition in this area and has significantly increased its success in exploration and production in the region. As testament to this, Repsol, expanding on its ten years of expertise in the region, recently entered into a partnership with Sonangol, the Angolan national oil company. This will allow the company to use Repsol’s Kaleidoscope technology with the aim of helping it to model the Kwanza basin, an area offshore Angola which has become a hot area for exploration in recent years. As Repsol continues to invest and apply its pioneering exploration strategies, through the use of advanced seismic imaging techniques, to survey deep water and offshore basins, West Africa is emerging as one of the most promising regions in terms of future development opportunities. prensa@repsol.com www.repsol.com

East and Central Africa as well as US shale are expected to be the next big growth areas for the oil and gas industry in the near future. But companies who want to be involved must have cash on their balance sheets or be able to partner with firms that do in order to get the most out of exploration potential. And if investors choose wisely, they might be able to take a slice of the vast riches which the oil and gas industry can offer.

Business Reporter · February 2014

Oil & gas – Industry view

Business Zone

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The future

Give the oil market the regulation it needs Well-meaning regulation of markets is making life harder for oil companies looking to manage their oil price risk

ell-meaning regulation of markets is making life harder for oil companies looking to manage their oil price risk. The US Dodd Frank and the European EMIR initiatives want to shift the opaque over-the-counter (OTC) market onto regulated exchanges that can be more easily measured and monitored. This ignores the fact that many hedgers do not have the credit capacity to meet the daily cash calls that protect the regulated clearing houses from defaulters. Regulated exchanges see only the hedge side of a hedger’s position and make no allowance for offsetting price moves in the tangible asset the financial instrument is hedging. OTC market makers can see both sides of the position and can make a more informed assessment of the hedger’s true risk. The Volcker rule, one aspect of Dodd Frank, aims to stop US banks from “proprietary” trading, using their strong balance sheets to make markets for the oil company hedger. The banks are being further hamstrung by proposals to keep them out of trading

physical oil altogether. Where are the banks to put the complex risks they take away from “real” oil industry players, if not into the physical arbitrages that are beyond the scope of the small industrial firms? Take banks out of the equation and you remove the only real competition to the oil majors and the large trading houses. These will have a clear field to offer risk management and financing solutions to small players at the price of a chunk of equity in their projects. Where regulation is really needed, regulating the Brent oil price benchmark that sets the price of at least 200 billion barrels of oil per year, the regulators are nowhere to be seen. Although the EC and the US

Department of Justice are taking a hard look at whether this benchmark is, like Libor, manipulated, no one is ensuring that the benchmark itself remains robust as underlying physical production declines. Companies looking to hedge, finance developments or simply sell their physical oil at a fair price face this unquantifiable risk because no one is in charge of when the next change to the benchmark is coming, or what form it will take. Consilience specialises in providing advice to companies navigating these choppy market issues. Liz Bossley is CEO of Consilience +44 (0)20 7928 1222 www.ceag.org

The right MBA degree can enhance your career Continuous transformation of global industries and the emergence of new markets means that “upskilling” to gain competitive advantage is being widely considered by many professionals. Increased competition and the fight for resources is also forcing organisations to concentrate on developing strong management competencies – and Robert Gordon University’s MBA programme can help to meet those requirements. RGU’s Aberdeen Business School is one of the leading providers of management and professional education in Scotland. Its reputation for courses specific to industry that relate to real-life working environments precedes it. It offers an MBA programme which consists of MBA, MBA Oil and Gas Management and MBA Information Management and maintains a truly global perspective. RGU’s MBA programme is designed with students’ aspirations and industry demand in mind and focuses on academic underpinning and ethical practice, behavioural skills, career mentoring, personal development and industry engagement through guest lectures, projects and networking events. The university has more than 850 MBA alumni and more than 300 students currently on the programme. Courses are delivered through flexible study options of full-time, part-time and online learning, with students from as far afield as India, Dubai, London and Glasgow having undertaken and completed an MBA through RGU via online learning. Associate dean Professor Ken Russell, responsible for the MBA and Corporate portfolio, said: “As a modern professional university we appreciate the importance of pertinent degree content that provides industry experience, and our accredited courses have been developed as a result of industry demand and are recognised globally.” +44 (0)1224 263428 a.scott@rgu.ac.uk

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Meeting the challenges of the UK’s oil and gas industry It’s an exciting time to be operating in the UKCS, says Keith Nutting INDUSTRY VIEW

o maximise the potential of the current investment wave into the UK Continental Shelf (UKCS), companies need to overcome wideranging challenges such as maximising mature field recovery, exploiting new field development and boosting the use of onshore terminals and infrastructure. They will need to do so while reducing operating costs and meeting the UK’s safety and environmental regulations governing oil and gas exploration, which are among the most stringent in the world. All developments must pass intense scrutiny, and integrity of equipment and facilities must be demonstrated at all stages of design and operation. Achieving this remains the paramount priority for the industry, no matter how technically challenging. New discoveries are often more challenging reservoirs, frequently with diﬃcult ﬂuids (high temperature and pressure; corrosive; heavy oil), thus leading to marginal economics. They often require highly engineered solutions in terms of

subsea equipment or topsides processing and pipelines, together with high-grade materials such as high-strength steels and corrosion-resistant alloys. At the same time, project economics demand tight limits on CAPEX, requiring constant innovation throughout the supply chain to deliver value. Examples include wider use of mechanically lined pipe, instead of traditional high-cost CRA clad materials, supported by extensive R&D by INTECSEA and other technology providers. WorleyParsons has developed significant enhanced oil-recovery techniques in Canada, the US and the Middle East, which it is now deploying in the UKCS. The North Sea has well-developed offshore production infrastructure, so new discoveries can usually be tied back to existing host facilities. However, subsea connections to platforms are often not straightforward, requiring novel design and construction techniques to provide new risers and topsides connections, with minimal interruption to operations, and uncompromised safety. The UK continental shelf is a mature

basin with many facilities operating beyond their original design life. This requires a constant need to inspect, monitor and repair topsides and subsea pipelines and equipment. Achieving this at a tolerable cost requires world-class capability and innovation across a vast range of specialisms, from materials and corrosion, soil mechanics, data management and structural engineering to process and flow assurance, marine operations and construction. Keeping aging assets operating safely continues to challenge the brightest minds in the industry. Meeting these challenges will need new approaches, innovations and technologies to ensure the UKCS continues to meets its energy demand for decades to come. As with many similar markets around the world, WorleyParsons is working closely

with the UK oil and gas sector to provide the insights, experience and specialist resources throughout the lifespan of assets. WorleyParsons in the UK draws from its global resources of almost 40,000 people in 43 countries and 165 oﬃces to bring the latest technologies and execution advancements to satisfy the unique challenges of our customers. “It’s an exciting and challenging time to be operating in the UKCS. We are working with leading-edge organisations who expect our approaches and ideas,” says Keith Nutting, UK Location Director. “As such, we provide challenging and diverse career development for existing team members and talented new hires.” +44 (0)20 8326 5000 www.worleyparsons.com

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