Hard action not warm words to solve oil crisis
Jann Brown assesses the value of North Sea oil and calls for cost issues to be addressed.
John Paul, Getty's secret of success was to "Rise early, work hard, strike oil". That maxim has been severely challenged by the recent dramatic slump in the oil price. I have spent most of my working life in the industry, first as CFO of Cairn, one of Europe's leading oil and gas explorers, and now as audit chair of Wood Group, the global oil and gas services provider.
Back in my student days in the 1970s I remember the excitement of the opening up of the North Sea. My fellow students – well the boys at least because the girls weren't allowed – headed off to the new frontier on the rigs. It was a new world of experiences with earnings that seemed pure Dallas.
Forty years on, the future of the North Sea is facing a serious challenge. Beyond the noise of the media debate of the last few weeks, it is worth reminding ourselves why the North Sea is so important for the UK. The industry employs half a million people the length and breadth of Britain, earning £15bn a year for the UK economy.
It also provides careers for thousands of British workers to work in oil and gas around the world. Not that long ago I found myself waiting in reception at the Petronas Twin Towers in Kuala Lumpur and listening to the air resounding not to the sound of Malay voices but the clamour of Aberdonian accents.
It is worth reminding ourselves why the North Sea is so important for the UK. The industry employs half a million people the length and breadth of Britain.
In the developing world you find national oil companies whose primary purpose is to provide energy security to their own economies. The British oil industry should always stand on its own two feet but we shouldn't forget the role it plays in our energy security. The North Sea delivers 70 per cent of the UK's primary supply of oil and gas. That's crucial to our economic prosperity.
I remember well from my days as a history student, that the Industrial Revolution was fuelled by a bountiful supply of coal. Our modern UK economy needs to be fuelled by a bountiful supply of our own oil and gas.
The UK oil industry also plays an important role as a source of entrepreneurs. I've been involved in judging the EY Entrepreneur Awards for a number of years, and it has often felt as if half the entrants were new start-ups spun out of the oil industry. That spirit of innovation is golden and needs to be replicated in other sectors.
So how do we solve the current crisis? Praying that the oil price goes back above $100 is not a strategy. The solution lies both in the hands of government and in the hands of the industry itself. In the last three years costs have soared by 45 per cent, making the North Sea a very expensive place to extract a barrel of oil. The industry must address this cost and efficiency challenge.
Tax from North Sea oil has been a massive contributor to the coffers of the Treasury. It has funded large parts of UK public spending for decades. The government and the industry now agree the focus must be on "maximum economic recovery" of our oil and gas reserves, not "maximum tax recovery". The industry expects to see warm government words transformed into hard action in the next budget.
Britain needs the North Sea to keep the lights on; to fuel the transport of the nation; to provide plentiful employment; and to play its part in the economic wellbeing of the UK for many years to come.
Jann Brown CA is President of ICAS.
I would like to thank all those who have donated to the ICAS Foundation. Your generosity has been heart warming. It has now allowed us to support more than 35 students through bursaries and mentors (including those pictured, right, with ICAS chief executive Anton Colella at the 160th anniversary celebrations).
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