Power_of_Scotland_130226

Power of Scotland

Reinvention Brian Nixon on the challenge of decommissioning

Bright sparks Why innovation and ideas are the real drivers of industry

Tuesday February 26 2013

Tuesday February 26 2013 | the times

2

Power of Scotland

Welcome

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A steady tide of optimism Welcome to the latest issue of the Power of Scotland. On these pages Colin Welsh looks at the positive prospects for the international oil market and says that there are high hopes for UK shale, while Peter Jones examines the complex mix of challenge and opportunity presented by the Scottish independence referendum.

We also take an overview of the importance of the industry’s collaboration with academia in order to drive growth — and the need for long-term certainty in decommissioning, where lack of investment on larger scale work is restricting investment in onshore facilities.

And as the imperative grows across all businesses to engage more women in senior jobs, we ask how the energy sector can do more to benefit from the talent of skilled females.

Inside ...

Intelligent life

Why collaboration with academia will give the sector a worldwide edge Page 4

Cover story

With billions of pounds at stake, long-term certainty in decommissioning is crucial to help extend economic recovery Page 8

Quest for the best

How can the energy sector better use the skills of female workers? Page 14

Success city

Aberdeen, offshore technology deals hotspot Page 18

The traditional US markets based in cities such as Houston have been changed by the shale gas revolution

Global market remains fluid but optimism is still justified While boom and bust has historically defined the the oil and gas sector, the international picture is changing for the better, writes Colin Welsh

O

ver the past 40 years the oil and gas industry has earned a reputation for boom and bust that investors should avoid. But due to the maturity of the production base, the tightness of the crude market and the consequent resilient oil prices, the picture is changing.

2012 was a poor year for most of the world’s leading economies/oil consumers, yet much to the surprise of the International Energy Authority, global demand came in almost 15 per cent ahead of its forecast at 975,000 barrels a day. Even when the world’s economies are struggling, oil demand increases. A review of oil consumption over the last 30 years demonstrates that despite recessions, wars, natural disasters and financial crises, global demand growth has averaged more than 1.3 per cent a year.

Keeping up with that demand growth is becoming an issue because all the easy giant oil fields were found decades ago. That is why the oil companies are exploring for oil in increasingly hostile and expensive places such as the Arctic.

Moreover, despite ever-increasing spend in arresting decline rate, the existing production base is declining faster than the oil companies would like.

In 2011 aggregate production of the top five independent oil companies fell by more than 8 per cent over the previous year, despite capital expenditure in excess of $136 billion. This is not just bad news for the oil companies but also for the UK

International markets will be good as activity in key offshore geographies gathers pace

where oil production has plummeted from 2.5million barrels a day in 2002 to 1.15 million barrels a day in 2011. The recent about-turn by the government on taxation of offshore oil and gas profits may go some way to arresting the UK production decline, but it may be case of too little too late.

Bucking this trend of decline is the US, where oil and gas was seen as a sunset industry until the advent of shale drilling, which has resulted in meteoric production growth. While gas prices have slumped as a consequence of the surge in supplies to the benefit of the US consumer and industry, it seems unlikely that the same will happen to oil prices because the industry is not self-sustaining at significantly lower crude prices.

The confluence of increasing demand and supply challenges has resulted in surprisingly resilient crude prices. In 2012 Brent crude averaged $112 /barrel.

Despite anaemic growth in the developed world, China and non-OECD demand not to mention turmoil in Egypt, Syria and Iran may lift crude prices higher in 2013.

The need to work harder to find and produce more oil together with higher crude prices is fuelling increasing levels of oilfield service spending. Consequently an optimistic outlook for this sector is justified.

International markets will be good to oil and gas in 2013 as project activity in all the key offshore geographies continues to gather pace. The wild cards are Brazil, Australia and the Falklands which have the potential to become giant markets in the near future. On the drilling side, international activity is also looking good with over 100 wells planned. Areas to watch include Ireland, Gambia, Gabon, Nicaragua, Kenya, Namibia, Peru, Morocco, New Zealand and Vietnam.

Closer to home things are looking promising for the UK, with offshore spending at levels not seen since the 1970s. Spending in the US will continue to be robust due to the service intensity of the fracking activity and

the return of the Gulf of Mexico to pre Macondo activity levels.

The shortage of experienced people and high quality equipment is challenging but, despite this, the large service companies are forecasting annual revenue growth in excess of 10 per cent for the next few years as well as increased margins, and the opportunities for small and medium sized companies, particularly those with differentiating technologies are particularly attractive.

There are high hopes for UK shale now that the potential for it to help lower gas prices and boost economic growth has been recognised and the UK government has decided the process is safe. There will be no UK shale gas revolution in 2013, but we can expect to see significant capital committed to the sector in terms of investment in acreage. It will certainly raise the stakes if an oil major takes a position.

No one can tell at present how big the prize from shale in the UK will be, but it’s likely to be substantial, potentially offering decades of cheap natural gas to the UK, and perhaps significant oil reserves too.

One day the UK will have an energy policy that reflects that potential economic windfall but we are unlikely to see that in 2013.

From an M&A perspective there is an expectation that large, predominantly US, service companies will become increasingly interested in acquiring capacity and technology and achieving geographical expansion through acquisition, while interest in the sector from private equity firms has exploded recently.

More buyers and increasing profits make a powerful cocktail as far as transaction activity and metrics are concerned.

In the exploration and production sector consolidation continues to be a recurring, but unfulfilled, theme. At present the US public markets appear to have more appetite for oil and gas than the UK and consequently that may have a bearing on the shape of E&P transactions in 2013.

Colin Welsh is chief executive of Simmons & Co International, corporate finance advisers to the energy industry.

the times | Tuesday February 26 2013

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Power of Scotland

Peter Jones

The compelling dilemma of oil and the independence debate

N

orth Sea oil companies are clearly going to find themselves at the centre of the biggest political battle living Britons have ever seen – the referendum on Scottish independence due in autumn 2014. And executives are going to have to ask themselves whether they should stand pat on the sidelines and say nothing, or get involved.

One of the reasons that the UKCS is central to this argument is obvious — the tax revenues. But the taxes are only part of the story. Another part is the wealth creating capacity of the North Sea — the contribution that it makes to GDP. To see why, we need to run through the numbers. In 2010-11, Scottish taxes raised (excluding oil revenues) fell short of public spending on services by £14.3 billion or 12 per cent of non-oil GDP. The UK’s public sector balance sheet (again excluding capital spending) for the same year was in deficit by £97.8 billion, or 6.6 per cent of UK GDP. If Scotland became independent and did acquire all the offshore oil and gas fields that geography says it would probably be entitled to, the equation changes dramatically. In Scotland’s case, the 2010-11 balance shrinks to a much

smaller £6.4 billion or 4.4 per cent of GDP. But the UK’s account heads in the other direction, the deficit swelling to £105.8 billion, 7.9 per cent of GDP. So Scottish independence doesn’t just put Scottish public finances in a better position, it also puts the UK in a worse place. That’s not just because tax revenues switch from the UK to Scotland, but also because the UK would be losing GDP which Scotland would gain.

Using the 2010-11 figures, Scottish GDP would rise from £119 billion to £145 billion, but UK GDP would lose both Scottish onshore and offshore GDP, dropping from £1,479 billion to £1,334 billion. It means that not only would the rest of the UK’s deficit rise, but the ability to reduce it would be weakened, while the converse would happen to Scotland provided, of course, that oil prices do not significantly weaken.

This potentially gives the oil and gas industry enormous political leverage in the independence debate. The key word here is “potentially” because the industry has always shied away from getting involved, at least overtly, in political debates.

But the shock of the tax hike in the 2011 budget might have changed a few minds. UK politicians laid out a set of

rules, including prior consultation on proposed changes to the tax regime, and then promptly broke their own rules.

To take an utterly ruthless stance, the industry could put both governments up against a wall and point a gun at their heads. Aimed at the UK government, the gun would say: If you want us to back keeping Scotland in the union, you’ll have to cut our ridiculously high tax bill. Targeted on the Scottish government, the message would be: If you want us to be positive about independence, you’ll have to promise to cut our taxes.

The flaw in this strategy, however,

james glossop for the times

The industry has shied away from getting involved in political debates

is that the industry could end up on the losing side which could cause, at worst, revenge-seeking behaviour by the winning government, or at best, stony faces when the industry next went seeking some concessions.

But there is an alternative which does not have this binary risk. That would be to say to both governments: We have stayed out of this political debate. We intend to continue steering clear, but if we perceive something happening which is damaging to our interests or, conversely, of great benefit to our interests, we might think about getting involved.

That puts the onus on governments to make the first favour-seeking move, while the industry doesn’t have to do anything except, of course, to respond when the favours are extended.

There is still one important question. Would an independent Scotland be advantageous to the industry or not? The key word here is “stability”.

Arguably, the UK government blew that card when it hiked supplementary taxes in the March 2011 budget and, despite subsequent concessions, many in the industry still feel angry about it.

So there is an argument for saying that the devil we don’t know might be better. And there is also an argument for saying that because the North Sea industry would be much more important to an independent Scottish government than it is to the present UK government, then it might be more malleable to industry wishes.

It is an interesting opportunity, and challenge. Anyone up for it?

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Tuesday February 26 2013 | the times

4

Power of Scotland

Focus

Brain, not brawn, drives the industry

Collaboration with academia is vital in developing technology that gives the energy sector a crucial edge, writes Bruce Donaldson

E

xtracting oil and gas from under the North Sea may seem a fairly straightforward business — at its most fundamental, it flows up a pipe and then on to shore — but behind that process lies a huge amount of clever and complex science. Despite public perceptions to the contrary, it is brainpower and not brawn which secures Scotland’s energy sector and gives us a worldwide competitive edge. New extraction techniques and technologies, for instance, are much more likely to come from the laboratory than the wellhead.

Many of the bigger operators do have their own research and development teams, but much of the work which allows Scotland to retain and develop its place as a global energy player comes out of the country’s universities.

The relationship between energy and academia is now well established. The country’s higher education institutions saw the opportunity of becoming involved in the industry as far back at the 1970s, and the synergy has continued since. And it will, of course, continue to flourish as the drive to make Scotland a world leader in renewable energy gathers pace.

In broad terms, each of the Scottish

universities involved in in the energy sector has its own industry specialisms.

Edinburgh’s Heriot-Watt University, for instance, has particular strengths in areas such as sub-surface and extraction techniques, and its Institute of Petroleum Engineering, established as far back as 1975, in particular is known and respected worldwide.

Robert Gordon University in Aberdeen has a niche in surface and sea floor technology, along with installations and the infrastructure for getting oil and gas to shore. Aberdeen and St Andrews Universities work on the legal and commercial sides, while Strathclyde is strong in chemical engineering.

These are, of course, generalisations: academics and researchers work on a

Prof Dorrik Stow says that much university research is funded by the industry broad range of fronts, and often co-operate with each other in specific areas. For instance, Aberdeen, St Andrews, Glasgow, Edinburgh and Heriot-Watt work together in Earth Science Scotland, a body which also includes the Edinburgh headquarters of the British Geological Survey and concentrates on the geoscience aspects of sub surface technology.

A large cluster of Scottish universities are also involved in the Energy Technology Partnership, which works right across the energy spectrum, including renewables, in areas including power systems and grids.

Professor Dorrik Stow is the Head of the Institute of Petroleum Engineering at Heriot-Watt. The relationship between the industry and academia is, he says “abso-

lutely vital”. He continues: “We are very closely aligned with the the oil and gas industry, and much of the research which takes place here is funded by the sector one way or another.

“Usually there are Joint Industry Projects where between one and 20 oil companies will sponsor a programme over three years in areas such as unconventional or deepwater reserves or enhanced recovery.

“The links with the industry are really very close. When a programmes is being set up, for instance, we have to decide what database to use, and then we have regular meetings feeding back results. It’s very much an ongoing partnership.”

Although the technology may be sophisticated, Professor Stow sums the ethos up in relatively simple terms. “Our mission is to do the research that is needed in service of society’s needs.”

There is also, he adds, a conscious attempt by the universities to concentrate on particular areas in order to avoid unnecessary duplication.

“The setup works quite well. We are currently, for instance, in the process of talking to the Scottish Government and Scottish Enterprise to facilitate an Oil and Gas Innovation Centre.”

This, he explains,is the type of collaborative project which can draw on the expertise and academic research experience of Scottish universities, applying needsdriven research which can ultimately lead to new niche products.

It is a compelling proposition, aimed at providing positive industry outcomes and at the same time bolstering Scotland’s position as a global centre of excellence in hydrocarbon technology in particular.

Given its scale and corporate influence and earning power, why does the oil and gas industry not simply fund its own research, rather than outsourcing it to academics? In reality, Professor Stow says, these companies are quite streamlined and may prefer to bring in an external partner.

“Of course, companies like Shell, BP

Inspired synaptic connections are as important as engineering and infrastructure in the oil and gas industry

and Exxon Mobil have their own large research and development operations, but they are also some of the biggest university funders. They may choose not to do some of the work themselves.”

University lab work is of huge help in areas such as enhanced recovery. As the North Sea is now a mature province, in many fields as much oil has been extracted as technology allows. However, recovery procedures to date are not particularly efficient: it may be that only between a quarter and a third of the total reserve has been removed.

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the times | Tuesday February 26 2013

5

Power of Scotland Getty images

Intellectual power houses of Scotland Scotland’s universities are a critical part of the energy sector. This isn’t just true in oil and gas; they have already played a hugely important role in the country’s aspiration to be a world leader in renewables.

One, of course, is not unrelated to the other. Academics have seen the opportunities offered by industrial collaboration ever since the first drop of North Sea oil came ashore in the 1970s.

One of the first examples was the Institute of Petroleum Engineering at Edinburgh’s Heriot-Watt University.

This has grown over the decades and undertakes world class research, training and teaching. it now has the largest petroleum research programme in the UK as well as an extensive presence in the sector internationally.

Heriot-Watt is also at the cutting edge of research in renewable energy, both on its own and in conjunction with other higher education institutions. For instance, the Scottish Institute for Solar Energy Research (SISER) pulls together top researchers and academics in this

pull together academics from Strathclyde and across the Scottish university sector to work in collaboration with industry. The teams will bring together and exploit their expertise in a range of different disciplines which will include engineering and science as well as business, humanities and social sciences.

The focus of the project will be to deliver tangible, workable results through its specialist, shared laboratory facilities. In keeping with its philosophy of taking a collaborative approach, it will work not just with industry, but with government agencies and other organisations.

Scotland’s universities have also historically created spin-out companies to har-

Iain Matheson of Fugro sees “huge potential” for renewables

Obtaining the remaining oil is technically difficult, but techniques are improving all the time and the industry is keen to recover more. “It may be possible to recover another five, 10 or 15 per cent.

Various methods are needed to do this, and the required research is quite sophisticated. For instance, what do you pump down in order to push the oil out? That depends on what oil is in the reservoir and the nature of the reservoir.

“This sort of thing needs a lot of work and the Institute of Petroleum Engineering is one of the best laboratories worldwide to do that sort of research. The oil companies don’t have the skills themselves.”

Professor Stow adds: “I don’t think anyone is under any illusion that we will achieve 100 per cent recovery of reserves — carbonate reservoirs such as limestone and chalk, for instance, can be very variable and difficult. But if we can push the recovery rate to 50 per cent, then that is going to make a big difference.”

Part of the skill in terms of academic research, Professor Stow says, is to be able to lift your eyes from where we are now and look 20 years ahead. “Oil companies are global and they go to the best places to explore and produce. They will,

Oil companies will always go to the centres of excellence when it comes to research though, always go to the centres of excellence when it comes to research. But that does mean that we have to continually improve.”

Another Scottish university which has historically had strong links with the energy sector is Strathclyde. This plays a pivotal role in research, teaching and knowledge exchange in power and energy, and is currently The Times Higher Education UK University of the year.

Among other initiatives, the university is in the process of bringing together industry and academia on an unrivalled scale with the construction of its £89 million Technology and Innovation Centre.

With a specialised focus on industrial and business needs, this new facility will

ness and commercialise their expertise.

One of these is Edinburgh-based Fugro EMU Limited, a specialist marine environmental consultancy which incorporates a company formed by Heriot-Watt and is now part of one of the world’s biggest geotechnical and survey service providers.

Iain Matheson, one of the firm’s Principal Consultants, says that linkages with the university still exist: it provides support for students, for instance, working on individual projects. He also acknowledges the work universities do in terms of enhanced recovery techniques, which he says is “critical.”

He also sees the vast opportunities offered by renewables. “There is huge potential for the future, for instance, in tidal power, and we have a window of opportunity at present where we can improve the technology further.”

Matheson is concerned that there can be too much of a dash to commercialisation which means that the technology is not as well developed or robust as it could be. Taking this technological development forwards is, he believes, an area where Scottish universities have a role to play.

“I think we could do with taking a breather, improving the technology and rolling out later versions which are more sophisticated and more robust.

“Business wants solutions quickly and that does create jobs, but it also gives us power which is more expensive than it needs to be.”

As well as working directly with the oil majors and with each other, universities also have links with energy consultancies.

area from right across Scotland.

The aim is to work nationally and internationally with industry to develop solar technologies which are particularly suited for deployment in Northern Europe, such as integrated photovoltaic systems, and to assist with solar energy policy development.

Another project at Heriot-Watt is the Centre for Advanced Energy Storage and Recovery (CAESAR), which bridges traditional disciplines in materials research, seeking solutions to energy problems.

On the other side of the country, Strathclyde University in Glasgow also has a reputation for excellence in its collaborative institutes, which include the Technology and Innovation Centre, a facility working to break down barriers between disciplines.

Strathclyde also has the Power Networks Demonstration Centre (PNDC). This is a world class facility which aims to accelerate the roll-out and adoption of new technologies including advanced power grids.

For instance, OTM is an independent firm of technology management consultants specialising in the upstream oil and gas sector, helping operators and their suppliers to identify, commercialise and deploy new technology.

“We’ve done a number of projects with the Scottish universities,” says Jessica Rouse, who runs OTM’s investment arm, Oiltech. “For instance, we’ve assisted Aberdeen in commercialising resonance enhanced drilling — helping them to commercialise that, doing a market study and providing advice on commercialisation routes.”

The company seeks to encourage universities — however early in their research programmes — to think about the potential for applying their R&D outputs to the oil and gas sector.

It is still the case that academics may research an idea but operate in silos, so they may not necessarily see its relevance to the energy sector. At the same time, oil and gas operators may not necessarily not think out of the box either.

OTM acts as a marriage broker, identifying projects and then trawling universities to see if it can find research programmes which dovetail with these industry requirements. It then works to partner them with each other.

Rouse explains: “It is a challenge to get ideas to market, of course, but a lot of our clients are looking outside the engineering toolbox. They want to know what’s going on in maths, biology and chemistry departments. and see where that might take them in terms of the challenges they have.”

Her colleague Annie Hairsine, a director at OTM, says the company has worked on more than 40 joint industry projects over the last 10 years. “They’ve been tremendously successful. Doing collaborative project work is unique — it’s not often that you have competitors coming together to develop something. But if they see a common requirement, they will respond.”

The oil companies, she adds, are also increasingly aware that they may be able to pair with research institutions outside academia. “One of the trends we’ve seen is that oil companies are not just looking at the typical oil and gas universities but are opening out a little bit.

“We’ve done a couple of studies looking at what research is going on globally and getting the oil companies to look at it and see if it could have an application in the sector.

That’s a sign of how willing they are to invest in early stage research. So even if you’re not an oil and gas university, you should still be thinking about whether your research might be useful in this sector.”

Tuesday February 26 2013 | the times

6

Power of Scotland commercial report: Heriot-Watt UNiVerSitY

Heriot-Watt University leads the way in enhanced oil recovery

H

ydrocarbon recovery requires immense skill, world leading technology and innovative thinking. Research into more effective recovery methods is crucial as the hunt for hydrocarbons moves to deeper water offshore, deeper locations in the earth and more challenging operating environments.

Heriot-Watt University’s Institute of Petroleum Engineering (IPE) is world leading research and teaching establishment. It finds innovative solutions to the most challenging issues facing the oil and gas industry and helps to deliver valuable incremental increases in oil recovery and productivity. Using unique, world leading experimental facilities and modelling techniques, IPE is working to understand the fundamentals of oil recovery under realistic pressure and temperatures. Ground-breaking work in this area has led to significant advances in the understanding of hydrocarbon behaviour, its interaction with rock and enhanced oil recovery techniques.

The UK’s oil lies buried deep beneath the surface of the earth but it is surprising that we currently leave behind considerably more hydrocarbon than we recover. Estimates are that a further 6 billion barrels of oil can be extracted using already existing techniques. Using current and future technological approaches between 14 and 26 billion barrels of oil equivalent could be extracted. If we don’t develop innovative techniques in cooperation with the oil industry, this residual oil in place will represent lost income for companies and lost revenue for the exchequer.

This is money that could be used to help bolster the UK economy. IPE’s research is critical to facilitating enhanced oil recovery (EOR).

IPE Head of Institute, Prof Dorrik Stow says, “It’s our interdisciplinary work that differentiates us from others. We offer the industry a fully integrated capability. Our focus is on distinctly applied research and teaching that covers fundamental theory through to practical application.”

IPE’s main engagement with the oil and gas sector is via a number of Joint Industry Programmes (JIP). Our JIPs allow collaboration and competition to form the basis of innovation.

The JIP model allows for competitors to join together and drive research into topics that affect many players in discrete areas of the industry.

Currently IPE has over 40 industrial sponsors in 12 research theme areas covering activity in exploration, development and production. These sponsors come from around the world, representing belief that the academics at IPE can deliver in a way that few other research establishments can. The Heriot-Watt University JIP methodology creates successful partnerships between academia and industry.

Our research agenda covers E&P but also the effects of energy development in potentially fragile marine environments. These challenging research problems are becoming key to the energy sector’s present and future challenges.

The JIP model offers our sponsors the opportunity to multiply the effectiveness of their investment in an academic research project. Each of our sponsors pays a fixed contribution to a notional budget in line with an expected number of sponsors. The actual project budget is determined by the programme of work being undertaken vs the actual number of sponsors. IPE researchers then work, with the involvement of our sponsor representatives, to a programme set in accordance

centre for enhanced Hydrocarbon recovery and co2 Solutions Heriot-Watt’s JIPs have some characteristic features, the first attribute is that they are based on specific themes and challenges facing our industry. JIPs are predominantly delivered through multiple phases, and the research work is tailored to meet the current and future requirements of our sponsors. Our researchers work continuously with industrial contacts to define these requirements.

These needs can be immediate but most are framed in the future strategies of IPE’s potential sponsors.

The second characteristic of Heriot-Watt University JIPs is that they attract broad support from the oil and gas industry internationally.

IPE’s sponsors come from countries as far apart as Canada to Australia. A major research initiative studying hydrocarbon production from carbonate reservoirs has attracted sponsorship from South American oil and gas corporation, Petrobras.

Globally, the oil and gas industry is drawn to Heriot-Watt by the relevance of its research and the opportunity to combine the talents of company specialists with the experience of our gifted researchers.

Next, we work hard to be distinctive. For example, when we develop computer simulations of the complex flows and chemical interactions that happen in oil and gas reservoirs, we work to link our computer predictions with real world scenarios. Illustrating this point, we are comparing the way that modern day rivers flow to the prehistoric features that we see in seismic imagery, or performing physical experiments at realistic reservoir pressures and temperatures to

Our JIP research delivers to the requirements of a challenging industry. Our drive to meet the needs of our sponsors has resulted in JIPs with extremely high reputations in the industry. The determination to succeed has always been sustained by the passion and motivation of our research staff.

Heriot-Watt University IPE has been successful in developing programmes that draw in multimillion pound annual investment in multiphase transport and flow assurance. The Flow Assurance and Scale Team (FAST) consortium is widely recognized as the world leading research activity in Oilfield Scale prevention. Their research findings have developed treatments used in thousands of wells around the globe, resulting in greatly increased well productivity. The FAST team is funded by over 20 industrial sponsors. Capability developed in this area is significant on the world stage.

The International Centre for Gas Hydrate Research at Heriot-Watt University addresses various aspects of flow assurance and gas hydrate research.

Further areas of interest include positive aspects of gas hydrate technology, such as their application in processing and transportation of hydrocarbon fluids and the potential of natural gas hydrates as a source of energy.

JIP research at Heriot-Watt University is contributing to the profitability of the oil and gas industry. Our work has helped to develop and transfer knowledge, developing skills to the highest possible level. IPE staff members have been responsible for the generation of independent companies through university spinout and individual

Heriot-Watt University’s commercialisation team is recognised as being one of the best in the UK recently securing funding to continue running the Converge challenge, a competition that helps the best ideas from the university sector make their way to market.

The commercialisation process has helped technology developed during the execution of our JIPs to gain access to market. Research and Enterprise Services within the university offer researchers the tools and support to develop their market offerings. Our sponsors benefit from the opportunity to develop commercial products based on the university’s intellectual property.

Two of our most entrepreneurial research leaders have formed companies to exploit their knowledge and technology. Hydrafact is developing a range of products and services for the oil and gas sector based around design and testing of low dosage hydrate inhibitors, hydrate monitoring and early warning systems and the natural occurrence of hydrates in sediments. Petroc is developing enhanced oil recovery techniques for application in industry based on IPE’s strong track record in EOR. The novel techniques that are now being commercialised will utilise CO2 as a vector for EOR and reduce the amount of CO2 in the Earth’s atmosphere.

The challenges facing the energy sector are difficult. Increasing demand for energy is being driven by global development. If the UKCS is to deliver more oil and gas than it leaves behind, it will require innovation developed by the energy industry and skilled, experienced institutes such

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Our success is due to our tailored and fit-for-purpose approach, which clients and regulators value highly. Fugro EMU services include: Our success is due to our tailored and fit-for-purpose approach, which clients and regulators highly. Fugro • Environmental Impact value Assessment (EIA)EMU services include: • Oil Pollution Emergency Planning (OPEP) Environmental Impact •• Consents, permits andAssessment reporting (EIA) Oil Pollution Emergency Planning •• Geophysical and metocean survey(OPEP) Consents, permits anddesign reporting •• Environmental survey and execution Geophysical andmonitoring metocean survey •• Marine mammal •• Environmental survey design and execution Biological and chemical laboratory services •• Marine mammal monitoring Oil spill fingerprinting and forensics •• Biological and chemical laboratory services Training and industry advice • Oil spill fingerprinting and forensics Training industry advice As •part of theand Fugro Group, Fugro EMU delivers a total solution to all our clients, integrating environmental consultancy, survey, As part of theFugro’s Fugro other Group, Fugro EMUservices. delivers a total solution analysis and earth science to all our clients, integrating environmental consultancy, survey, analysis and Fugro’s other earth science services.

Tuesday February 26 2013 | the times

8

Power of Scotland

Cover story

In order to build you

After four decades, a mature industry faces the challenge of renewing much of its infrastructure. Rob Stokes investigates the importance of decommisioning

T

he voice of the UK’s oil and gas operators and service companies yesterday unveiled new forecasts of UK oil and gas exploration, investment and production in 2013 and beyond. Among the details from the industry association, Oil & Gas UK, were minor tweaks to its previous analysis of the billions of pounds required to dismantle, remove onshore, decontaminate, recycle or scrap equipment and waste from fields at the ends of their economically viable lives.

The new figures form the backdrop to a major industry event at Aberdeen Exhibition & Conference Centre in late March when offshore operators, major (Tier 1)

contractors, and supply chain companies will gather for Decom Offshore 2013 facilitated by Decom North Sea. Decom North Sea is a forum set up by the UK’s Department of Energy & Climate Change (DECC) alongside the two state development agencies for Scotland — Scottish Enterprise, and Highlands and Islands Enterprise.

Decom Offshore is a new event to advise suppliers of key challenges shared by operators and Tier 1 contractors during offshore decommissioning, and to inform operators and Tier 1 contractors of innovative solutions and techniques that supply chain companies can offer.

Challenges include, among others, well plugging and abandonment, recycling, treatment of hazardous waste, and removal and transportation.

Billions of pounds are at stake. In its

2012 Decommissioning Insight, Oil & Gas UK predicted that decommissioning existing UK Continental Shelf (UKCS) facilities will cost £28.7 billion (in 2011 money) by 2040 and that new investment in infrastructure could add £4.3 billion to this total. It forecast that £4.5 billion will be spent 2017 and £10.3 billion by 2022.

Its latest take on this does not vary greatly, though the timeframe for the earliest tranche of decommissioning spend will have been pushed further out due to the December 2012 announcement by the Treasury about the socalled Decommissioning Relief Deed.

This contract, the result of lengthy consultation between the Treasury and oil and gas operators is due to be published on March 20 and will provide greater certainty of the availability of tax relief on decommissioning costs.

“Long-term certainty on decommissioning relief will, at no cost to government, help to extend economic recovery of oil and gas from the UKCS,” Mike Tholen, Oil & Gas UK’s Economics and Commercial Director told The Times.

“It will promote near-term investment in many mature assets; indeed, the

The challenges facing the industry include well plugging, recycling and transporting hazardous waste

announcement that the deed was to be published in March facilitated the sale of assets to companies wanting to invest in them. In the longer-term, certainty on this issue will postpone decommissioning by five to seven years on average, allowing production of an additional 1.7 billion barrels of oil and gas.”

Even so, some decommissioning projects are well advanced in the planning.

Some contracting companies are planning and preparing for investments such as extending onshore facilities for decommissioning and new equipment for plugging and abandoning wells, said Brian Nixon, Chief Executive of Decom North Sea. “There is still a degree of uncertainty about the timing of some projects, and this is causing companies some concern and delaying investment in preparation for decommissioning,” he told The Times.

There is sensitivity around the issues: some operators feel, rightly or wrongly, that talking publicly about decommissioning timetables could impact on their share prices because of assumptions that the market would make about the effect that shutting down production would have on revenues.

Decom North Sea has provided a con-

the times | Tuesday February 26 2013

9

Power of Scotland

must decommission duit for operator members to share their plans at networking events over the past couple of years so that potential contractors and sub-contractors can hear how the work may be handled and contracts issued.

“The operators have been very good at opening up to the industry about where they would like to see new ideas and technologies to help with some of the trickier aspects of these jobs,” Nixon said.

“Similarly, we bring forward technology specialists, equipment providers, contractors and consultants to highlight the solutions they can offer to operators and Tier 1 contractors. So we have both top-down and bottom-up approaches.”

Nixon says there is a truly open attitude to sharing experiences of success and failure in decommissioning. “There’s a recognition that this is not an investment but an expenditure for both the industry and the taxpayer, so the sooner we can start looking at efficiency improvement and cost containment the better it is for everyone. This sharing of knowledge is very encouraging.”

Decommissioning is not all about scrapping equipment. Previously, operators have claimed recycling as high as 98

per cent to 98.5 per cent for other types of projects, but there has been much less demonstration of effective refurbishment and re-use of major equipment such as compressors, turbines, valves, pedestal cranes and drilling derricks, Nixon said.

“We really do not understand why that is the case.”

Decom North Sea has responded by attracting funding from four operators in advanced stages of planning decommissioning — a sum matched by DECC — to study what real and perceived barriers there are to more re-use, and where and how it is working elsewhere in the world and in other industry sectors.

It is also seeking to stimulate the market through pilot scheme in which the four operators have agreed that when their lead decommissioning projects take place, all the valves from the offshore platforms will be made available for free to a valve refurbishment company.

A short list of valve refurbishers and re-certifiers was being invited to submit formal tenders as Power of Scotland went to press and Nixon anticipated that a contract will be placed during the second quarter of the year.

“The successful tenderer will be given

The sooner we look at efficiency improvement and cost containment the better

several thousand valves from these platforms and will be able to keep the profit if they can refurbish, recertify and sell them,” he said.

In return, the company thus benefiting will provide all information to Decom North Sea so the latter can see what types of valve are (and are not) being resold, how long they take to sell, to which industries, where, and other parameters.

“It will let us understand what we need to do to stimulate a market for refurbishment and re-use,” Nixon said.

An added refinement of Decom North Sea is hinted at by its name: it is not just about the UKCS but about the whole of the North Sea and has Norwegian, Danish, Dutch, German and American members alongside UK ones.

Recent learning journeys have included visits to Louisiana, USA, to see how decommissioning was working in the Gulf of Mexico, a mature oil province where hundreds of offshore assets are being taken out every year.

“That said, it’s of a very different type and scale than what we’re facing in the North Sea,” Nixon said. “The belief is that, over the next few years in the North Sea, the deeper water, harsher conditions, heavier and more complex oil producing

platforms in the Central and Northern North Sea should give the industry an opportunity to establish a benchmark for deepwater decommissioning projects internationally.”

While operators encountered on the Louisiana trip had wide experience of shallow waters, they were only now starting to plan their first deepwater commissioning.

“We also know of examples offshore in Australia, New Zealand, California and West Africa,” Nixon said. “So the opportunity is to increase the efficiency, and develop the models and approaches, to really establish a benchmark for deepwater.”

A similar fact finding trip including operators, contractors and consultants under the Decom North Sea banner was made to Norway earlier this month when the visits included an onshore recycling plant. “It was a good opportunity to compare notes but also to stimulate joint ventures and partnerships,” Nixon said.

Progress on a number of joint industry projects and studies is expected to be revealed later this year at Offshore Decommissioning Conference 2013, which will be held in St Andrews in October and is organised by Decom North Sea

Decommissioning The decommissioning of existing offshore installations is soon to become a major part of the oil and gas industry with many mature assets worldwide now earmarked for removal.

The majority of these assets have been in operation for many years long before three dimensional design models were introduced so there are no models available to assist with the decommissioning planning.

Throughout the life of each asset there have been countless modifications to the structures and the processes without any updates being carried out to any general arrangement or detailed drawings.

This basically means that there is no accurate record of what the actual structure or processes look like today, making the “reverse engineering” of these assets very difficult.

Scopus Engineering have the capabilities to provide an accurate 3D representation of the complete asset through Laser Scanning technology.

A 3D laser scan point cloud is produced, accurate to +/- 5mm of the complete asset providing valuable as-built information allow the decommissioning team to plan the removal process of each component of the installation.

Scopus Engineering have valuable experience in this field having already been in many decommissioning projects including the Brent Field in the North Sea.

What we deliver:• True 3D as-built of facility • True definition of scopy of work • Accurate planning • Establish accurate budgets • Risk mitigation

Tuesday February 26 2013 | the times

10

Power of Scotland

Turning base metal into gold

and Oil & Gas UK. One such study is looking at likely levels of decommissioning activity over the next five to ten years and comparing this to the industry’s capacity.

“There’s a perception that there could be some supply-demand pinch points, though not just related to decommissioning,” Nixon said. “The high level of new capital investment that we’re seeing in the North Sea, the high level of sustained operation and maintenance of existing infrastructure, and the offshore wind programme, which is ramping up very quickly, will be calling on the same industry sector as decommissioning. So we’re trying to make an assessment right across the industry – supply vessels, heavy lift barges, onshore disposal yards, engineering management personnel and so on – to

There is a high level of investment in the North Sea and maintenance will call on the same sector as decommissioning

North Sea decommissioning promises a new market for some of the best known names in the recycling and disposal of unwanted assets for other industries.

KDC Contractors Ltd, a leader in decommissioning, demolition and land remediation, with clients in oil and gas processing, pharmaceuticals production, nuclear energy, food, drink, and many other sectors, is one such firm in discussions with offshore operators.

The Manchester based company with extensive Scottish operations is chasing decommissioning contracts that would involve in situ ‘soft strip’, and decommissioning and demolition work for oil platforms. Some demolition can take place on the platform, cutting components down to size, stripping out asbestos, and removing heavy metals and naturally occurring radioactive waste (NORM).

The majority of this work is likely to be done onshore with KDC’s experience on processing plants such as SSE at Peterhead, and BP Exploration’s Sullom Voe terminal in Shetland being immediately applicable. An offshore oil platform is effectively a hotel, a power station, and an oil and gas processing plant. KDC currently supports most of the main oil and gas operators in their onshore operations, including BP, Chevron, Exxon, and Valero.

At utility ScottishPower’s Inverkip power station site, KDC handled decon-

tamination and demolition of a heavy fuel oil system from a fuel oil jetty in the Clyde Estuary through to a landside tank farm.

The company has already started the process to equip its staff with offshore safety, health, and environmental training and qualifications for the minor tranche of work that it anticipates offshore.

“We see the potential to set up a business turning over several million pounds in our segment of the decommissioning market,” said Nigel Jenkins, Sales and Marketing Director at KDC and a board member of Decom North Sea, the industry forum.

Discussions are taking place within the strategy and planning development

Nigel Jenkins sees the potential for a multi-million pound business

Waste Management for Offshore Decommissioning With extensive experience of decommissioning projects for some of the largest UK oil and gas operators, Enviroco can provide a supply chain solution for all your waste management needs, including: • Hazardous wastes and Mercury • Hydrocarbons and bulk fluids • NORM (Naturally Occurring Radioactive Material) • Scrap metal • Recyclable wastes Learn how Enviroco can help your business: Contact 01493 856722

www.enviroco.co.uk

phase of projects where operators ask contractors about the most cost-effective ways to decommission platforms in safe and environmentally sound ways.

“Recycling will be very significant in decommissioning,” Jenkins said. “We believe that what we do in identifying assets that can be reused — pumps, valves, rotors and so on — and maximising the ability to recycle metals by cleaning them and segregating them in the right way can be a significant offset against costs.

Not all scrap metals are the same.

Mild steels currently reach a few hundreds of pounds per tonne while some stainless steels used in processing plants reach many more hundreds if not thousands of pounds per tonne.

Copper is in demand too. While prices of metals in scrap markets rise and fall with economic cycles and trends, there have been consistent levels of demand for such materials for several years, Jenkins said.

In common with other companies in its markets, KDC has learned to make every little count in line with regulations and industry standards. “As members of the National Federation of Demolition Contractors, we submit annual statistics on our recycling performance and we consistently recycle above 97 per cent of material across all our projects,” Jenkins said.

the times | Tuesday February 26 2013

11

Power of Scotland commercial report: acceNtUre

improved execution of capital projects could save utilities industry $2.2 trillion by 2035

By John Downie, Managing Director – Resources - Europe, Africa and Latin America at Accenture

N

early $38 trillion is expected to be invested in capital projects worldwide through 2035, the International Energy Agency (IEA) reports. Electricity and power projects account for 45 percent of

the global total.

Investments are expected to be highest in emerging economies due to rapid urbanisation and economic growth. In OECD countries, where demand growth is relatively low, the most frequent driver is replacement and upgrade of aging assets followed by the need to meet environmental regulations.

The unprecedented scale of investment prompted further research into the processes of capital projects delivery. The survey findings and implications were published last year in the new report, Developing Strategies for the Effective Delivery of Capital Projects: Accenture global survey of the utilities industry.

Over three quarters of executives surveyed consider effective delivery of capital projects to be “critical” to delivering high performance in the next five years. Utility companies, however, are not meeting their own targets for project delivery.

Only a third of utilities executives have delivered to the approved budget for all projects, and under half to the approved schedule for all projects.

A capital project was defined as a long-term investment to build, maintain or improve an asset; for utilities, this covers transmission and distribution projects, as well as generation for conventional, tional, nuclear nuclear and and renewable renewable sources. sources. The The survey survey focused focused on on projects projects to to deliver deliver operating operating assets assets costcosting ing at at least least $1 $1 billion billion and and at at least least aa year year to to build. build.

Accenture Accenture estimated estimated the the potential potential savings savings of of improving improving performance performance in in capital capital projects projects delivery delivery based based on on the the responses responses in in our our survey. survey. These These calculations calculations are are based based on on aa number number of of simple simple asassumptions sumptions that that translate translate the the delivery delivery experience experience of of the the executives executives surveyed surveyed against against their their own own project project cost cost targets. targets.

For For example example aa company company investing investing roughly roughly $25 $25 billion billion in in large large capital capital projects projects in in the the next next 20 20 years, years, improving improving performance performance could could save save the the company company roughly roughly $2.5 $2.5 billion billion to to $5 $5 billion. billion. The The amount amount saved saved would would vary vary by by baseline baseline performance performance and and degree degree of of improvement. improvement.

Further, Further, assuming assuming $17 $17 trillion trillion in in anticipated anticipated utility utility projects, projects, and and based based on on Accenture Accenture calculacalculations, tions, utility utility companies companies worldwide worldwide collectively collectively could could save save up up to to $2.2 $2.2 trillion trillion through through 2035 2035 by by improving improving upfront upfront planning, planning, leadership leadership and and execuexecution tion of of capital capital projects. projects.

Size Size and and complexity complexity of of projects projects is is growing growing Over Over two-thirds two-thirds of of executives executives surveyed surveyed expect expect that, that, in in the the next next five five years, years, portfolio portfolio size size and and project project complexity complexity will will continue continue to to increase. increase.

The The mix mix of of investments investments will will inevitably inevitably become more complex as new become more complex as new technologies technologies take take aa larger larger proportion proportion of of the the portfolio. portfolio. Renewable Renewable sources—including sources—including wind, wind, solar solar photovoltaic photovoltaic and and hydro—account hydro—account for for 60 60 per per cent cent of of the the projected projected investments investments in in new new generating generating capacity, capacity, accordaccord-

ing to the IEA. Long-term investments are also needed to enable additional renewable capacity, such as backup conventional generation plants and networks through smart grid deployments and new connections.

Multiple factors—including the economic downturn, regulations, carbon prices and lack of clarity on energy policies—have made financing more more difficult difficult in in recent recent years years for for many many utilities. utilities.

The The difficulties difficulties of of obtaining obtaining funding funding can can be be exexacerbated acerbated by by aa record record of of delays delays and and cost cost overruns. overruns.

For For more more than than half half of of utility utility executives, executives, financing financing costs costs and and complexity complexity have have risen risen in in the the past past two two years. years.

Shortages Shortages of of talent talent Talent Talent tops tops the the list list of of priorities priorities to to optimise optimise capital capital project project management. management. Sixty-one Sixty-one per per cent cent of of executives executives mention mention access access to to talent talent as as aa major major priority priority in in the the next next three three years. years.

Developing Developing and and retaining retaining talent talent is is especially especially difficult difficult due due to to competing competing demand demand for for project project management management managers managers from from inside inside and and outside outside the the industry, industry, including including major major capital capital projects projects in in the the mining, mining, chemicals, chemicals, energy energy and and other other industries. industries. Developing Developing aa talent talent strategy strategy early early on on is is essential, essential, and and companies companies need need to to consider consider multiple multiple factors: factors: leadership, leadership, talent talent and and culture, culture, and and organisational organisational structure. structure.

Chronic Chronic talent talent shortages shortages are are speeding speeding uptake uptake of of technologies technologies that that make make the the most most of of experiexperienced, enced, well-paid well-paid resources. resources. Technology Technology can can be be leveraged leveraged to to improve improve design design validation, validation, construcconstruction tion and and verification. verification. In In addition, addition, knowledge knowledge management management systems systems enable enable greater greater continuity, continuity, helping helping to to bring bring new new people people up up to to speed speed faster. faster.

The The need need for for rigorous rigorous front-end front-end loading loading After After talent, talent, more more than than half half of of executives executives rated rated improved improved upfront upfront planning planning and and scheduling scheduling as as the the

next highest priority for focus in the next few years. Higher-quality upfront planning calls for improved risk management, collaboration and contributions from suppliers and finally data and analytics.

Risks typically do not act independently but interact, which is why having extensive cross-functional input is crucial. Organisations tions need need aa rigorous rigorous approach approach to to capture capture and and assess assess risks—at risks—at the the project project and and the the portfolio portfolio levels—as levels—as well well as as robust robust processes processes to to monitor monitor and and mitigate mitigate risks. risks.

Rising Rising asset-construction asset-construction costs costs increase increase the the pressure pressure for for operational operational excellence. excellence. ImprovImproving ing contracting contracting strategies—the strategies—the priority priority tied tied at at number number two two by by utility utility executives—has executives—has become become increasingly increasingly relevant relevant as as companies companies endeavor endeavor to to manage manage costs, costs, talent talent shortages shortages and and quality quality requirements. requirements.

Improved Improved planning planning requires requires knowledge knowledge of of what what has has happened happened before before to to avoid avoid repeating repeating mistakes mistakes and and to to capture capture leading leading practices practices for for dissemination dissemination across across the the company. company. Data Data and and analytics analytics are are needed needed to to compare compare estimates estimates on on past past projects, projects, review review variances variances and and analyse analyse causes. causes.

Upfront Upfront planning planning is is where where the the plan plan to to crecreate ate value value begins. begins. Utility Utility companies companies need need to to consider consider the the percentage percentage spend spend associated associated with with upfront upfront planning planning and and the the potential potential payoff payoff in in reduced reduced scope scope change change and and avoidance avoidance of of risks. risks.

In In aa different different question question related related to to the the chalchallenges, utility executives agreed that lenges, utility executives agreed that delays delays and and revisions revisions were were frequently frequently caused caused by by regularegulatory tory demands. demands. More More than than half half cited cited regulatory regulatory requirements requirements as as the the most most common common challenge challenge to to getting getting projects projects launched. launched. Regulatory Regulatory requirerequirements ments were were also also at at the the top top of of leading leading causes causes for for plan plan revisions. revisions. This This illustrates illustrates the the importance importance of of aa well-developed well-developed regulatory regulatory management management cacapability pability and and the the need need to to incorporate incorporate regulatory regulatory risks risks effectively effectively into into upfront upfront planning. planning.

Streamlining the transition to operating assets Significant value can be lost through delays in transitioning from a completed project to an asset functioning at full capacity. Key areas for improving results include working more closely with operations, improving configuration tion management management and and using using integrated integrated IT IT systems systems to to improve improve delivery delivery performance. performance.

Closer Closer collaboration collaboration with with operations operations improves improves the the effectiveness effectiveness of of operational operational and and maintenance maintenance programs programs at at commissioning. commissioning.

Slightly Slightly more more than than half half of of utility utility executives executives in in the the survey survey extensively extensively involve involve operations operations in in project project design design and and delivery. delivery.

Mastering Mastering configuration configuration management management ensures ensures the the as-built as-built asset asset matches matches the the asasdesigned designed and and licensed licensed configuration, configuration, aa critical critical issue issue for for regulators regulators and and operations. operations. IntegratIntegrating ing IT IT systems systems provides provides the the operating operating asset asset with with the the data data and and information information necessary necessary to to operate operate the the asset asset at at planned planned levels. levels. In In adaddition, dition, expertly expertly managing managing the the supply supply chain chain provides provides that that the the right right spares spares and and replacement replacement parts parts are are available available at at commissioning. commissioning. As As more more people people are are enlisted enlisted to to execute execute major major projects, projects, effective effective change change management management programs programs are are essential. essential.

High High performance performance throughout throughout the the project project life life cycle cycle Given Given the the billions—trillions billions—trillions in in aggregate aggregate worldwide—of worldwide—of money money being being invested, invested, aa comcomprehensive prehensive and and rigorous rigorous appraisal appraisal of of project project delivery delivery capabilities capabilities is is warranted. warranted. Research Research shows that major projects shows that major projects need need to to be be run run as as high-stakes high-stakes businesses, businesses, with with thorough thorough upfront upfront planning, planning, and and project project teams teams driven driven throughout throughout the the project project life life cycle cycle to to achieve achieve high high performance. performance.

Tuesday February 26 2013 | the times

12

Power of Scotland

see if there’s a need for further investment.”

A Decom North Sea workshop in Aberdeen earlier this month involved 60 people in mapping out the skills sets, technologies and facilities that will be needed over the many years taken by a decommissioning project then asking where the strengths and any gaps are.

“If we do identify gaps and weaknesses, then perhaps we will have time to do something about those before the major burst of decommissioning in a year or so’s time.

Nixon said.

Addressing who bears risk at key stages of decommissioning is a brake on agreeing contracting models. A joint survey of 51 Decom North Sea members by the organisation and Accenture, the global management consulting, technology services and outsourcing company, has analysed this and found confidence that risks are ‘mostly’ or ‘partly’ controllable.

It is hoped that the research will shape contract guidelines which Decom North Sea aims to present this year after further consultation with members.

“We wanted to know whether current contracting models, typically cost-plus or a lump sum, allow development and sharing of a body of knowledge beneficial to the whole industry,” said Luca Corradi, Managing Director of Accenture’s energy practice, which has an extensive business in Aberdeen, and who led the joint research and analysed the findings. “The answer was ‘probably not’ so we wanted to look at how the situation could be improved.”

Corradi said that bringing the industry together to discuss the issue had in itself been beneficial in identifying when risk

should be the responsibility of operators, contractors or, in many cases, shared.

“A clear understating of this can help to remove the premium that a contractor requires to cover uncertainty. That is a good thing when the overall goal is how to make decommissioning more efficient, as it is a pure cost for the operator and for the public through tax relief,” he added.

The goal is to end up with common procedures that can be built into enterprise systems and refined in light of experience across the industry.

The project dovetails well with Accenture’s expertise in industrialising processes and making outcomes more repeatable and predictable for clients (see page 11). The North Sea is where the world oil and gas industry will learn to do decommissioning more efficiently,” said Corradi.

Supply chain issues identified by Decom North Sea are pointed up by the experience of Enviroco, the waste management firm owned by Aberdeen based oil and gas logistics specialists ASCO. Enviroco has waste transfer and treatment centres in Aberdeen and Peterhead in Scotland, and at Great Yarmouth and Sheffield in England. It has decontaminated, recycled and disposed of small scale above-sea and subsea infrastructure and/or waste from numerous North Sea assets in both the Southern and Northern sectors. Depending on availability of vessels and crews — a familiar caveat for offshore projects — 2013 or 2014 will see the company handling further North Sea infrastructure.

Enviroco reckons 1.24 per cent of decom-

Enviroco’s Graham Heaton points to a waiting game in the onshore disposal supply chain

missioning spend will be on disposal and sees itself in a good position to capture a share through existing relationships. “It’s a natural step to take larger pieces of equipment away,” said Graham Heaton, Bid and Marketing Manager at Enviroco.

The company is involved with Peterhead Decommissioning Ltd, a consortium pressing the case for the all-weather, deepwater Smith Embankment at Peterhead harbour to become a destination of choice for scrapped offshore infrastructure.

Enviroco also sees opportunities for decommissioning work out of a number of Scottish port locations, and could work with partners in a number of other coastal locations across the UK. Enviroco has the credentials to deal

with “unwelcome guests”: the toxic metal mercury; Naturally Occurring Radioactive Material (NORM) that may be brought to the surface during oil and gas exploration and production; ‘pyrophoric’ coke materials that can self-ignite; and other materials that need specialist disposal.

“It’s the harder stuff to deal with,” said Heaton. “Hundreds of companies can dispose of and trade in scrap metal. We’re focusing our efforts on solutions for disposing of mercury and NORM.” Mercury in condensates and water is filtered and disposed of safely in approved manner. Aberdeen based NORM Solutions, a 2012 joint venture between Enviroco and scrap metal processor John Lawrie Group, has an answer to the radioactive waste issue. “It’s fully operational and work is now ramping up,” said Heaton.

Despite Enviroco’s work flow, he says lack of activity on larger scale decommissioning is constraining investment in onshore facilities by Enviroco and competitors.

“People don’t want to invest until they see contracts coming up and can transact on these. So there’s a bit of holding back by the onshore disposal supply chain.

No-one wants to invest in one location and then discover that the industry wants to do all its commissioning in, say, Shetland.”

The waiting game will continue the longer operators use new technologies to eke revenue out of older platforms amid high oil prices and a stable, largely supportive tax regime. “So the feast has yet to arrive, but it is imminent at some stage,” Heaton said.

COMMERCIAL REPORT: BILFINGER SALAMIS

Integrated solutions for your decommissioning campaign

B

ilfinger Salamis, headquartered in Aberdeen, has provided integrated, multi-disciplined support services and maintenance solutions to a wide range of clients, principally in the energy, petrochemical, marine, industrial and utility sectors for nearly 40 years.

In the last ten years, Bilfinger Salamis has increased its market share, and service offering, leading to growth in turnover from £65m to a record of £156m in 2012.

Initially focussed on painting, scaffolding, insulation and blasting services, the company has continuously responded to development changes within the industry as well as client

requirements, and has grown significantly to offer a wider scope of integrated services including rope access, fireproofing, deck services, and inspection, as well as architectural outfitting, industrial cleaning and decommissioning activities, managed by the Specialist Services department.

Whilst a considerable part of the company’s work involves conventional and solutions-based fabric maintenance at both on and off shore operators’ assets, the importance of decommissioning activities forms a significant element of the company’s strategic growth.

Bilfinger Specialist Services Manager Garry Cruickshank said: “Through the strategic appointment of highly experienced and skilled decommissioning engineering personnel, Bilfinger Salamis have resourced and established additional skill sets to deliver considered solutions to support our clients decommissioning requirements, enabling the company to meet current challenges associated with pre-engineering down stages encountered within project decommissioning activities. “ As an integrated multi-service

provider, Bilfinger Salamis have completed several decommissioning campaigns, managed through the Specialist Services department.

Many of these projects have required Bilfinger Salamis to deliver numerous solutions out with conventional delivery models by experienced teams of people who are competent in a broad spectrum of engineering services, including decommissioning project management and engineering support.

The company also provides scaffolding, specialist access such as tension netting, industrial cleaning, waste management, NORM removal, NDT inspection and specialist cutting technology, as part of an integrated service.

As part of the Bilfinger Group of companies, Bilfinger Salamis has access to a wide range of products, services and experienced specialists, which enables innovative delivery of the most appropriate solutions to a wide range of decommissioning requirements.

The company’s decommissioning experience has provided it with extensive knowledge relating to cost modelling which has proven vital to our client’s project

successes, including numerous associated activities such as platform engineering down, preparation for removal, and subsequent structure and process deconstruction requirements.

Furthermore, the company has experience in developing method statements, resource schedules and estimates for associated disciplines, including pre-engineering (FEED), and comprehensive risk assessment and work pack compilation.

Bilfinger Salamis and its strategic alliance partners can also provide a comprehensive platform for decommissioning through laser surveys, which capture asset

condition, compile a 3D asset data base, evaluate current asset integrity, and, having appraised options, select the best practicable means for a decommissioning campaign.

Bilfinger Salamis is a leading international services contractor with a proven track record of providing integrated, multidisciplined support services and maintenance solutions to oil and gas markets.

• For further information about Bilfinger Salamis, call 01224 246000 or visit www.salamis.bilfinger.com

the times | Tuesday February 26 2013

13

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commercial report: Deco Diving, engineering & consultancy office commercial report: Deco Diving, engineering & consultancy office

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Tuesday February 26 2013 | the times

14

Power of Scotland

Female factor

A quest for the best women for the job Is the energy sector doing enough to benefit from the talent of of highlyskilled females?

Ginny Clark looks at the changing dynamic

Y

ou won’t get much argument about the fact women are under-represented throughout the oil and gas industry.

It’s a complex issue, and one that is not unique to oil and gas. However, for an industry that is often still perceived as grimy and macho, in a family-unfriendly environment, there is clearly work to be done in convincing more women about the opportunities that are available, in addition to examining problems of retention and progression.

More than 440,000 people are employed in the UK oil and gas industry, and research by OPITO, the industry’s focal point for skills, learning and workforce development, indicates a further 15,000 people are needed to boost skills provision in the short term, with thousands more jobs to be created in the years to come.

The most difficult vacancies to fill are those for design engineers of all disciplines, subsea and drilling engineers, project managers and geoscientists.

Clearly, anyone who pursues a career in engineering and environment will find

their skills are in great demand.

Yet the recent offshore demographics report by Oil & Gas UK shows just 3.7 per cent of offshore workers are women, with 30 per cent of them working in catering.

With fewer non-catering women workers than there were in 2007, it begs the question: Is enough being down to tap into the significant resource offered by highly-qualified women?

Alix Thom, Oil and Gas UK’s Employment and Skills Policy Manager, stresses the demographic report only relates to offshore workers, accounting for less than 10 per cent of the whole workforce.

However, with female representation across the whole industry around 20 per cent, she readily agrees there is work to be done.

“We’re certainly not complacent about this — we believe that in many ways North Sea oil and gas industry is Britain’s best kept secret,” says Thom. “We’re not alone in terms of having to tackle an engineering skills shortage, and there needs to be a concerted effort to help young people understand the opportunities the oil and gas industry can bring.

We’re actively working with OPITO to develop materials to fit the school curriculum, and it’s important we build on that, to help ensure there is a take up of

the right subjects at school.

“When it comes to encouraging more girls to consider the oil and gas industry, whether it’s image or awareness of the industry, there’s no doubt we need to do more. We need to raise awareness, not just with young people but also with teachers and with parents. We are aware there can be a lack of knowledge about the industry, or perceptions can be negative, perhaps because of inaccurate information about oil and gas activities.

We need to communicate the fantastic opportunities that are available within this industry - I certainly can’t think of another one that has such global reach.

“I still hear people saying this is a sunset industry, yet the last licensing round saw the most interest since the 1960s.

Of course, we also need to help people understand its longevity - this is still an industry that offers careers for life, as the UK still meets the bulk of its oil and gas requirements from its own reserves and we have sufficient resources to keep on producing for at least another 40 years.

The industry is booming here in the UK and abroad, this is a sector which provides not only highly skilled and well-rewarded employment but also the opportunity to push the boundaries in innovation and technology - we’re world leading in terms of subsea technology, for example. This is such an exciting time - especially following the series of recent announcements about new major developments in the North Sea .”

This may be a dynamic industry, that is pushing the boundaries in science and technology, but what if you want to take a giant step for womankind? Thom agrees the industry does labour under an image problem.

“In this industry there is probably too much talk about the offshore aspect,” she says. “Even then, that is likely to conjure

the times | Tuesday February 26 2013

15

Power of Scotland

up a picture of someone oily in a boiler suit, even though there are facilities such as gyms and other sports facilities out there. It’s really quite civilised! The other point is it’s not just about degree level entry, or solely engineering and science. We need technicians, skilled trades people, lawyers, accountants. The scale of the industry is such that you can have a career path that takes you up the managerial ladder or build a career as a subject matter expert. The industry offers masses of choice for people, so you are not stuck in one area but can move into other areas. Many of the people employed by the industry work within the supply chain, a diverse cross-section of many hundreds of different businesses who work with oil and gas businesses to keep everything running smoothly - so the variety of career choices is enormous across the UK, and of course, the globe.”

Thom, originally from Peterhead, caught the industry bug in a summer holiday job for BP, working on the Magnus project. When it came to doing her PhD, the suggestion she opt for industrial relations specialising in the offshore oil industry was unusual - but exciting.

“I’m very glad I did it,” says Thom, whose career was built at BP, Cairn Energy and the Wood Group. “Looking out the window here in Aberdeen I can see six vessels in the harbour and it changes by the hour. Some will be going to support seismic surveys, some will carry equipment or drill pipes on board and some will be carrying food and drink supplies.

It really is an exciting industry offering wonderful, lifelong global opportunities.”

However, for more women to become as involved and as enthused by the industry, those barriers which can be created by image and perception still have to be overcome. Larraine Boorman, managing director of OPITO, stresses that with more than £270billion contributed to the Exchequer over the last 40 years, and more than a third of the hydrocarbons still to go for in the North Sea, the industry has a bright future to look forward to for decades to come.

“Ultimately we want to inspire people – no matter which gender they are – to pursue a career in the sector and enjoy being part of this dynamic and forwardthinking industry,” she says. “The oil and gas industry is incredibly broad in terms of the spectrum of career options it offers.

However, technical job roles such as technicians and engineers still suffer from the stigma of being seen as traditionally male roles. As the body which leads on ensuring the industry has a safe and suitable skilled workforce both now and in the future, OPITO is working hard to increase awareness of science, technology, engineering and maths (STEM) related careers among women who continue to be under-represented in the field.

“Perception is a big part of attraction.

More often than not, the images people see of the oil and gas industry portray the external results of our efforts. On a human level, images of offshore platforms don’t portray the diversity and depth of our activities, and they certainly don’t say what the people who work in the industry feel about themselves, what they have achieved, and the opportuni-

Support and mentoring are crucial

O

il and gas companies are having to compete for the top talent. And Amanda Chilcott, pictured, Vice President of HR North Sea BP, believes young women are being lured away from science and engineering-led professions to other businesses, such as those within the financial services industry, that are “simply better at engaging with them.”

“It’s important we continue to address the issues that lead to females choosing alternative career paths and communicate clearly the diverse occupations available to women in the oil and gas sector,” she said. “We need supportive skills-based programmes and a greater integration of resources between government, industry and academia. At BP, we recognise a greater effort is required to attract highly qualified women to work in the industry. An example of one of our programmes geared towards achieving this goal is a personal and professional development programme for women, which we run in partnership with Oxford University, RBS and Springboard.”

The undergraduate mentoring programme enables young women to engage with other successful female scientists and engineers from BP, giving female students an insight into what a career in engineering actually involves. “Within BP, we also run the Women’s International Network (WIN) which connects thousands of women employed by BP across 80 countries worldwide. On a local level, we run the North Sea Women’s Network which sits under the

WIN umbrella and is open to all North Sea employees. The network aims to develop and retain the female talent pool in the North Sea region through sponsorship of learning and development events. It is here our women can develop relationships and help steer their careers in the right direction with support from colleagues.

“We’re also supporting young women through a recently launched £4.5 million scholarship fund for STEM students, where scholarships are offered through a selected number of universities. We’re committed to investing in tomorrow’s talent, from all social backgrounds and genders, in order to prepare students for long and successful careers in the industry.”

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Brymer,fol owedbya thoroughinsightinto thechal engesof leadershipfrom academia ndindustry experts.

Tuesday February 26 2013 | the times

Power of Scotland

We need to change the conversation with those we want to attract and the way we tell our story

Itisagreatop o rtunitytolearn fromthesharedinsightsofpeople enjoyingsuc es fulcare rsandhow toensurethatnomat erthe geographicalorculturalset ing,you wil alwaysbealeader.

ties, and lifestyle they have as a result.

“What we talk about among ourselves is much more real: The pioneering spirit to explore, adventure in some of the world’s most beautiful and demanding places, innovation at the forefront of science, courage and strength in managing high risk and a relentless energy to learn from our mistakes. This reality is very different from the story outside. We need to change the conversation with those we want to attract, and in particular, the way we tell our story.”

To tell that story, Boorman believes the industry needs to pull together more, in order to work more successfully from the classroom up, and the funding agencies down.

“The oil and gas industry is an equal opportunities employer that recognises and rewards talent, it’s not about whether you are male or female, it’s about what you bring to the table. Securing skills is a source of competitive advantage for businesses and for individual companies, the resource and capability vested by many in sourcing and developing that talent is outstanding. However, by hav-

The reasons behind the under-representation of women in STEM disciplines is complex, one being the lack of female role models

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Maria Trujillo Vergara points to ‘gender politics’

ing a more collaborative approach across industry we can achieve higher quality skills at entry, economies of scale and a better balance between the number of skilled people available and the numbers required. We can provide a better pool for organisations to compete for and an increase in quality. To do this, we need to take our collective presence and engage in a different dialogue with academia and government, most importantly the skills funding agencies. OPITO is currently undertaking much of this on industry’s behalf, but we have to speak with one voice to change public and political perception and start changing the way oil and gas is viewed.”

Boorman agrees the reasons behind the underrepresentation of women in STEM disciplines are complex, with a number of factors influencing the choices women make when it comes to their careers.

“One of the issues is there are very few role models for young women interested in these types of careers, so seeing how the subject choices they make at school can translate into careers isn’t always clear,” she says. “Similarly, girls aren’t always actively encouraged to choose science and maths subjects at school or to take part in extra-curricular activities such as science fairs and engineering competitions in the same way boys are. Turning this stereotype on its head is something which has to start in the classroom at an early age. Studies have shown when they start secondary school, just as many girls as boys have positive attitudes toward science subjects. From there however, this interest wanes with girls ultimately opting out of STEMrelated classes and careers. By working with partners in education, academia and industry, OPITO continues to establish sustainable relationships that focus on enhancing and enriching the curriculum.

We aim to showcase the application of academic subjects and the people who use them in their jobs through a raft of

career events and hands-on activities and have engaged with upwards of 750,000 young people to date.”

Of course, ambitious young women need to see role models, not only in their career sector of choice, but influencing policy and making decisions throughout society. Maria Trujillo Vergara, reservoir engineer with Conoco Phillips, believes the problems of women’s under-representation in her industry have to be seen in a wider context. It’s an issue of gender politics.

“Policy makers, and energy institutions in the public and private sector, all tend to be male dominated,” she says. “Similarly, the large-scale industries and agriculture are dominated by men in senior positions. Although many economists and engineers would accept welfare and efficiency approaches to meeting women’s energy needs, they don’t usually see the relevance of gender to their work. They believe that equality of sexes is a matter of local culture and political concern.

This situation is not only limited to the energy sector, it can be noticed that women are also under-represented in the political sector at a local and international level. In countries such as Zambia, South Africa, Uganda and Botswana, where women have held posts as minister of energy, gender issues tend to play a more important role in energy policy formulation and implementation.”

Trijuillo, chair of the Society of Petroleum Engineers’ sub-committee Another Perspective, not only wants to see more women encouraged to study degrees in science and engineering, she also wants to see them aiming high - right to the top.

Another Perspective are holding a seminar ‘The leadership journey - Unleashing the potential of your career’ at the Aberdeen Exhibition and Conference Centre on March 6.

“When women have the right resources,” she add, “they can show their potential, and achieve great roles on the career ladder, becoming efficient and inspirational leaders inside the energy sector.”

the times | Tuesday February 26 2013

17

Power of Scotland

The gender issue

Top women for the top jobs The Graduate: Hani Baluch

Middle management: Lisa Anthony

Hani Baluch is a petroleum engineer with BP. She found her feet working on a floating production, storage and offloading (FPSO) vessel on Foinaven Field, West of Shetland. She is currently supporing an onshore field as part of the North America Gas operations in Texas, while working toward completing BP’s early development Challenge Programme in order to graduate in 2013.

“My interest in chemical engineering was sparked by the modern day Gulf War and its implications for society,” says Baluch. “It ignited my fascination with how oil is involved in so many different aspects of our lives. This led me to pursue a degree that not only allowed

Lisa Anthony’s career with BP started on the Challenge Programme as a graduate engineer.

Originally from Irvine, Anthony studied a Masters in Chemical Engineering at Strathclyde University in Glasgow. For the past year and a half she has been working as a process safety engineer, with part of her role supporting the Andrew Platform and the ETAP Platform, looking at possible major accident hazards and assessing whether mitigation measures in place are adequate. Lisa also gives talks at Strathclyde University to students who are considering which companies they would like to work for.

“Throughout school and university I received support to do ‘whatever I wanted to do’,” says

Hani Baluch feels there are no restrictions to women who want to progress in the industry

Lisa Anthony notes that the imbalance in the industry in past days has changed in a positive way

me to do further research within this field, but also guided me towards a rewarding career in the petroleum industry. So far I’ve spent a year rotating offshore in the Atlantic shelf, and I’m now supporting a mature onshore gas field in Amarillo, Texas.

“I joined BP’s Challenge Programme in Aberdeen and a large percentage of my colleagues on the programme are female. I do think the industry has a problem attracting female graduates, mainly because there are misconceptions about the oil and gas industry. I spent a year offshore on the Foinaven FPSO vessel and was usually one of four or five females onboard. The ratio of females to males was never an issue and working offshore was a thoroughly enjoyable experience.

“I genuinely feel there are no barriers or restrictions to women who want to progress in this industry. I’ve never felt disadvantaged at BP. I recently volunteered as a speaker for a presentation at Girls Scouts to try to educate young women about careers in science and engineering.

“I was surprised at the number of times I got asked about how I cope in a male dominated environment! I’ve never felt working with males has impeded my career and hope this misconception will be eradicated over time. The industry does currently have a higher proportion of males. However, if we don’t encourage young women to pursue careers in science and engineering, this will never change!

“In 20 years I hope to be working as a senior petroleum engineer managing a team that is pushing the boundaries of oil and gas exploration.

“I’d like to work on projects that demand innovative thinking such as cross lifecycle field advancement, or the development of workstreams in complicated basins. Once I’ve gained more experience in the field, I’d like to become a mentor for young engineers

Anthony. “However, the struggle at school was a lack of awareness among teachers about the opportunities available. If a pupil achieved good grades in science and maths, there was a presumption they would go on to study medicine, dentistry or veterinary science. Engineering was never suggested to me. It was my dad who suggested chemical engineering, as he worked in the pharmaceutical industry.

“When I told one teacher I was going to study engineering they said: “Why would you want to do that? You’ll get your hands dirty!”

At University it was completely different, with opportunities to meet professionals from a range of industries, career workshops to help students decide future careers, and the university staff were also encouraging and open.

Some of the major players in the oil and gas industry, such as BP, had a good presence on campus and regularly delivered presentations and workshops that gave a good understanding of what it was like to work in the industry. In my penultimate year, I decided on the internship with BP and have never looked back.

There is still a larger proportion of men in the industry. Despite this, I haven’t at any point felt my ability has been questioned because I’m female.

I’ve always been offered the same opportunities and I’m respected, as a professional, by both male and female colleagues. I work in a process safety engineering team where five out of six of us are female.

“It’s no more difficult for women to progress in the oil and gas industry over men. However, I do feel there has been an imbalance of genders occupying senior positions in the past, as there were fewer females in the talent pool. Now, with more women working in the sector, this is changing. BP offers clear career paths for ambitious employees, regardless of gender.

In 20 years I hope to be managing a team that is pushing the boundaries

The industry cannot afford to maintain a male bias.

Ginny Clark talks to some women changing the agenda The Top Achiever: Allison Strong Allison Strong is a well interventions team leader for platform operations with BP, and has previously spent six months in Alaska on the North Slope in the Prudhoe Bay field. She is responsible for all interventions executed on BP’s eight North Sea platforms. Strong has eight people in her team including five engineers, one graduate engineer and two well site leaders. The team is responsible for increasing productivity, efficiency and safety of wells through data acquisition, and by repairing integrity issues.

“I always felt I received support and encouragement to follow my career aspirations throughout my school and university years,” says Strong, who is from Aberdeenshire. “I grew up in the oil capital of Europe, so being immersed in the industry had a huge influence.

I also attended Robert Gordon University, which has a keen interest in developing graduates with the necessary skills and abilities needed for a successful career in the energy industry.

“It’s hard not to notice you’re working in a male dominated environment. However, I’ve never felt my professional capabilities questioned as a consequence of my gender. In my early career I found myself in situations where I had to work hard to gain the trust and respect of my peers, but this was more a reflection of my age and years of experience in the job.

“I’m lucky to work for a company that recognises talent, and actively seeks to provide challenging growth opportunities for its employees. This leads to a great level of job satisfaction, and encourages me to develop skills in areas outside of my comfort zone. BP

Allison Strong says she is lucky to work for a company which recognises talent and provides challenging opportunities absolutely supports both male and female staff in the development of their careers. Employees are also fully supported in regards to changing career paths. I joined BP as a product chemist and was fully supported in my desire to become a well engineer.

“I believe I am the first female to hold the position of Well Interventions Team Leader, Platform Operations within the North Sea Well Interventions Team. My focus is to support and develop the competency and skills of the individuals within my team to ensure they succeed in their own careers. I’m committed to leading the team on the path towards engineering excellence.

“Companies more widely recognise diversity in the workforce is healthy and productive, and that women and men bring different strengths and perspectives to a team environment. The traditional female role is evolving and women are building the confidence to seek out career opportunities that 50 years ago would have been unimaginable. Now I’d like to see more women in senior management roles in the oil and gas industry. I’d also like to see more women have the opportunity to work offshore

The position is changing with clear career paths – regardless of gender

Tuesday February 26 2013 | the times

18

Power of Scotland

Finance

City underlines credentials as the real deal Recent news has confirmed Aberdeen’s continuing status as Europe’s deals hotspot for oilfield technologies, writes Rob Stokes

E

arly 2013 has provided striking evidence that investors have an undiminished appetite for acquiring or taking stakes in Aberdeen technology firms making exploration and production cheaper, easier and safer.

Business angels, venture capital (VC), private equity (PE), specialist funds and the venture wings of big oil and gas operators value the innovative companies that have cast the city and its environs as a deals hotspot since the UK economic depression began.

Pointers in January and February alone have included the following: Aberdeen’s Enovate Systems — which in financial year 2012 had revenues of about £15 million with EBITDA of £5 million — was acquired by Norway’s Aker Solutions, which will roll out the former’s subsea well control equipment through its global operations.

Big Growth Fund (BGF), the highgrowth business fund whose investment philosophy in oil and gas is described in a companion article with this feature, announced equity backing of £2.25 million for industrial chemicals firm Aubin.

Ellon based Aubin has supplied specialist, oil well cementation and stimulation chemicals for 27 years and will now commercialise two new, gel based products developed to treat and clean pipelines where standard solutions will not work.

London based PE and VC firm NBGI Private Equity added Cosalt PLC’s Aberdeen and Norway businesses to its portfolio, which includes Aberdeen based ATR Group. The industrial logic, NBGI explained, is to combine Cosalt technical leadership in offshore lifting, and its offshore inspection, testing and safety service with ATR’s complementary global equipment rental service for offshore maintenance sector.

From three existing portfolio companies, Oaktree Capital Management, an American global asset manager, has just created Harkand Group, an Aberdeen headquartered subsea inspection, repair and maintenance group targeting global annual sales of USD$1 billion within five years using proven state-of-art technologies.

“Oil and gas bucks the deals trend in

the UK and Europe — it is very buoyant,” says Douglas Martin, corporate finance partner at Anderson Anderson & Brown (AAB), independent Aberdeen chartered accountants with a long pedigree advising oil and gas sector companies in the small and mid-market space.

“Oil technology is very prominent in that space and is hugely attractive, particularly Aberdeen companies which are attractive to trade buyers. In some cases they are selling for double-digit multiples of EBITDA, which is fantastic.”

In the second half of 2012, AAB enjoyed its busiest spell of M&A related activity for nearly five years, says Martin. Oil and gas deals were prominent among these, and buyers are still hungry for more.

AAB’s current acquisition mandates include, inter alia: a listed group seeking subsea tech businesses with sales between £5 million and £100 million; and a highly acquisitive group looking for companies providing well intervention solutions and with turnover between £10 million and £250 million.

High multiples on exit are good news for VC and PE backers looking to realise portfolio investments and depending, of course, at what price they bought in and when. It is great news too for the many seasoned individuals who left larger service companies to found small technology firms that they developed into significant multimillion pound businesses.

For example: Jeff Edwards, the majority shareholder and founder of Enovate Systems left a large group to start it up in 2002 with AAB’s help as advisers and built it up to a scale that put it firmly on Aker’s radar.

In 2012, similar examples of large service companies snapping up innovators of scale included, among others: Halliburton’s purchase of Aberdeen based Red Spider to acquire the latter’s patented Remote Open Close technology that saves on both the time that it takes to complete oil wells and to monitor what is happening down them, thus reducing costly rig time; and Texas based Lufkin Industries’ purchase of Aberdeen’s Zenith Oilfield Technologies. a rapidly expanding, downhole monitoring specialist.

AAB also advised on BGF’s March 2012 £7.8 million equity stake in Aberdeen’s STATS Group, a pipeline solutions company that was BGF’s first investment in Scotland and which emphasised how

new buy side players – new UK funds, and trade buyers and investors emerging from overseas and complementary markets — are making a mark.

“BGF is definitely having an impact on the market for technology investments,” Douglas Martin suggests. “VCs are perhaps moving up the food chain more.

They will still do the right tech venture deals but are also more keen on private equity type deals as well. So there is maybe an opportunity for BGF to fill in a gap.”

There has probably never been so much money available for investing in oiltech growth companies, says SEP’s David Sneddon, partner at Glasgow based VC firm Scottish Equity Partners (SEP) whose current energy portfolio includes stakes in: Deep Casing Tools, Aberdeen; Fotech, fibre optic based acoustic monitoring systems for oil, gas and infrastructure; and ARKeX, whose airborne and marine sensing equipment helps oil and gas explorers to better understand subsurface geology.

“We’d love to invest more in the oil and gas service sector and want to see more deal flow in that space,” he adds. “Most technology companies that are raising money are not developing technology that applies only to the North Sea but has applications around the world.”

Deep Casing Tools is a good example.

Its reaming (well clearing) tools reduce

the risk of drills sticking in holes that are now often deeper, longer and at more of an angle from the vertical than in the early days of offshore oil and gas. The company recently reported a successful operation in the Norwegian North Sea where it solved drilling issues for state owned operator Statoil.

“The technology’s proved itself in several geographies including the North Sea, USA and Middle East and is starting to get some good momentum in sales,” Sneddon says. It is also applicable in geothermal and shale industries.

While some VCs hunger for new oil and gas technology investments, the story over the past year has been more about exits, says AAB’s Martin.

Aberdeen remains firmly at the hub of the subsea industry with many smaller companies successfully targeting niche products

Oil and gas major investment driver

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hen Simon Munro, a Scottish investor previously with US owned private equity firm Lime Rock Partners was recruited as Business Growth Fund’s (BGF) regional director for Scotland, he advised establishing an Aberdeen office.

He knew Oil &Gas (O&G) would provide deal flow for BGF, an independent company with capital of up to £2.5 billion, backed by five of main UK banks — Barclays, HSBC, Lloyds, RBS, and Standard Chartered — but managed completely autonomously.

“Some 50 per cent of deal flow in Scotland over five or so years has been in O&G,” Munro explains.

Out of five equity investments made from BGF’s Scotland-based team, staffed by people with wide O&G experience, four have had O&G content: £7.8 million in STATS Group, Aberdeen (February 2012); £8.76m in Portsmouth based Magma Global, a high tech subsea pipeline maker (January 2013); £2.25m in Ellon based Aubin (February 2013 – see main feature); and £3.85 million in M Squared Lasers, Glasgow (May 2012), whose technology is to be diversified into detecting gas leaks in the O&G industry.

“I think you will see us doing quite a lot of deals in the sector,” Munro predicts. “We’re differentiated

Simon Munro says BGF is focused on growth capital of up to £10 million from the competition.

We’re focused on growth capital of £2 million to £10 million for firms turning over around £5 million to £100 million and don’t do start-ups or MBOs.” BGF takes 10 per cent to 40 per cent of equity and a seat on the board. “We sit alongside management teams as non-threatening partners,” Munro says. “We don’t want to, and by mandate cannot, take control.”

Investing off its own balance sheet means BGF can take “a very long-term view”, he adds. “We can allow entrepreneurs more time to create value and to take a little money off the table for themselves. This derisks them so they really can focus on growing the business. We’re also well networked in the industry.

We know specialists who have done it before and really can help management teams.”

the times | Tuesday February 26 2013

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Power of Scotland

There is a lot of interest from investors who have been strong in the defence sector

Douglas Martin of AAB says the recent story has been about exits

“With pricing at these multiples, it is perhaps understandable that VCs are more focused on exits,” he says. An uplift in deals in the second half of 2012 was also understandable because most companies have been performing well on raised activity in the sector, he adds.

“So people are more likely to put high quality assets on the market, while for offmarket transactions where a company is approached by a trade buyer there’s more likely to be equilibrium between the expectations of buyers and sellers.”

North Sea oil and gas M&As (though not just pure technology plays) supported

by AAB in 2012 included disposal mandates for the sale of Conserve Oilfield Services to SCF Partners, NSL to ASCO, Cool Group to Knight Oil Tools, Screw Conveyor to Azure Investments, and Capelrig to Semco Maritime.

On the acquisitions side, it advised on Oaktree Capital’s purchase of a majority stake in ISS, CSL’s acquisition of Project Excellence and Peterson SBS’s acquisition of a majority stake in 80:20 Procurement Services.

In fund-raising activities, it supported clients including the investment in STATS Group by BGF and Lloyds Banking Group, and the investment in Fletcher Shipping by Maven (Scottish Loan Fund) and RBS. Its record underlines how independent professional advisers firm in Scotland may expand horizons and geographical reach based on building relationships

with clients in a local centre of world class excellence within a global industry.

“People tend to be very loyal,” says Martin. “50 per cent of our deal flow is generated from existing clients from our current base of more than 1,000 corporates, the other 50 per cent tends to come through our market position of being the most active adviser in Scotland since 2005.”

With many other sectors toiling, competition for oil and gas deals is rising. “So we continually challenge ourselves,” says Martin. “Having global relationships in the key oilfield regions allows us to keep apace of who is in the market – buyers and sellers.”

Such relationships in provinces such as Houston and the Middle East complement AAB’s membership of HCWA, an association of independent accountancy practices throughout the UK. HCWA is a business alliance member of Swiss based Crowe Horwath International which is ranked among the top 10 global accounting networks.

Within oil and gas, subsea is a hotspot in its own right, and small wonder.

A recent membership survey by Subsea UK, the industry association, found UK subsea companies anticipating sales growth of more than 20 per cent in 2013, with some predicting in excess of 50 per cent growth.

“Many of our small, entrepreneurial companies focused on niche products and services are set to double or treble in size (in 2013),” Neil Gordon, chief executive of Subsea UK said recently in Aberdeen at Subsea 2013, Europe’s largest subsea conference and exhibition.

Growth and increasing competition globally from US and Norwegian competitors in particular are placing demands on company financing.

Cash generation has been rising.

Almost 90 per cent of Subsea UK members surveyed saw turnover and profits rise in 2012. However, 15 per cent or more of respondents cited access to finance

and working capital in particular, finding suitable premises, controlling costs and managing growth as key challenges for them. Outside backing is one answer.

“We’re seeing a lot of deals in it,” says AAB’s Martin. “What’s also interesting is that you’re seeing a lot of interest from investors who’ve traditionally been strong in the defence sectors and who see subsea as being complementary to what they do.”

While founders who have worked hard and invested their own resources to build technology companies of scale are now in a position to realise investments, concern remains about how the next generation of oil technology will get funded through its early stages.

Some of these are being funded by high net worth individuals who have had success in the past, understand the market, and have the patience to build value.

Political will is also evident through enhanced state support for oil and gas innovation at earlier stages than angels, VCs and trade investors will contemplate.

When Scottish Enterprise, the state development agency, announced its ‘innovation call’ for funding proposals in oil and gas last year, it said it hoped to double to £10m the amount of support from existing Scottish, UK and European governmental and institutional sources that would be channelled for this purpose between 2012-15 compared with the previous three-year period.

For now though, investors presented with better market conditions than they have seen for a few years look more minded to reap than sow.

PROFESSIONAL BRIEF

Technology key to continued M&A success

By Mike Brown, Head of Corporate Finance at Anderson Anderson & Brown LLP

A

gainst the backdrop of a struggling economy with minimal growth in the UK and Europe, the Oil & Gas sector continues to demonstrate its resilience and the outlook for the North Sea in 2013 remains positive. With M&A activity in the Oil & Gas industry on the increase, we had an excellent year at Anderson Anderson & Brown LLP (AAB) in 2012, completing 40 transactions during the year and enjoying our busiest spell of M&A activity in the second half of the year for nearly 5 years.

With many Oil & Gas companies performing well, the last year has seen a number of vendors bringing quality assets to the market and this has had a positive impact on M&A activity within the sector amidst strong interest from both trade buyers and financial investors. As the global Oil & Gas industry continues to grow, we continually challenge ourselves to keep apace with new buyers and investors emerging both from overseas and complimentary markets.

As the hub of the Oil & Gas industry within the Eastern Hemisphere, Aberdeen will continue to play a key role in M&A activity

within the sector. Oil service companies headquartered in the UK will continue to prove extremely attractive for overseas buyers who are looking to develop their activities in the Eastern Hemisphere.

Many of these firms are tremendously innovative and have both people and technology deployed globally. This global footprint, and the scalability of many of these companies, makes them attractive to acquirers as they have the potential to deliver tangible value to both customers and shareholders alike.

There has been a recent upsurge in trade interest in established technology companies in the North Sea. Many acquisitive trade players have shown that they are willing to pay substantial premiums to access attractive Oil & Gas related technologies. This trend is demonstrated by recent transactions involving Aberdeen based companies including the acquisitions of Enovate Systems, a subsea well control equipment technology business,

by Aker Solutions and Red Spider, a well completion and intervention technology business, by Halliburton.

2013 is shaping up to be a strong year for international markets as

Mike Brown Head of Corporate Finance project activity in the vast majority of key global offshore markets continues to gather pace. Aberdeen based companies are well positioned to continue to benefit from this growth over the coming year. Given this, we can expect that significant interest in oil service companies headquartered in the UK, particularly those with talented people and good technology, will continue for the foreseeable future.

Tuesday February 26 2013 | the times

20

A hypothetical question: What would you do if somebody offered to invest millions in your company, provide access to their business expertise and network but leave you in control?

Not a hypothetical question: What would you do if somebody offered to invest millions in your company, provide access to their business expertise and network but leave you in control?

BGF is a major new equity investor for growing British businesses.

With an initial investment of ÂŁ2m - ÂŁ10m for a minority stake, we provide long-term capital for growing British companies. Our investment can be used to fund a wide variety of business plans. From making a strategic acquisition, to new product development, from kicking off a sales and marketing drive to increasing capacity.

Recent BGF investments in the oil and gas sector include: STATS Group, a provider of isolation services for onshore and offshore pipelines; M2 Lasers, a Glasgow based technology business with customers in the oil sector; Aubin, a supplier of specialist cementing and stimulation chemicals used in drilling and preparing wells; and Magma Global, a manufacturer of high performance carbon fibre pipe for subsea operations.

Any more questions?

BGF Aberdeen 0845 600 3699 aberdeen@bgf.co.uk www.bgf.co.uk