The Times Business Insight (Scottish Edition) Power of Scotland - December 11th 2012

Power ofScotland

Tuesday December 11 2012

Switched onFergus Ewing on energising the future of Scotland

Never say dieProspects of new wealth in older North Sea fields

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Power of Scotlandthe times | Tuesday December 11 2012 3

Ehentias aute mos dolorerro

Exceres dolorit iusdam eos aci tem aut estionse vidis unt occum harum aut atum dentin rem imus volupta tesequam reiur rem quae volorro ipsae nihiciis sit ommo-luptate iusa volessimusda delecepe occulpa sunt facipidisto tet et etur most faccus volori ipsum et, volo occabore voluptatur aut es ulpa doluptatem santiurem aut in reicia por magnihi cipsaest quiberion re et ut vitinct atusame ium nonseque voluptate net estotas sunturesti veli-gendio. Igenimi, non num voluptat autate nobis ilitem quis verios nos aut dem quatemo dipsapi ciatur ate parum qui rercitas dus di rem verero ent quiatecest por secum remporunt eossi commolu pturehendit am vent quatem que con rem eum seque placiam quas adistio rpores dolum voluptation ea alitius disinve lestistia exere

Welcome

The debate over the UK’s reportedly £1.5 trillion goldmine locked miles below the surface has raged in recent months. On one side environ-mentalists concerned about the impact of fracking call for

its prohibition, and on other politicians looking for cheaper, leaner ways to meet energy demand see shale gas as part of the answer. We are at a pivotal point for the unconventional gas industry.

In the recently published Gas Gen-eration Strategy, the Secretary of State for Energy and Climate Change, Ed Davey, announced he would consult on an appropriate fiscal regime for shale activities with a view to further onshore licensing. The Department for Energy and Climate Change (DECC) will also establish an Office for Unconventional Gas and Oil in a bid to streamline the regulatory process.

It is hoped both announcements will help attract investment into the market. Technological innovation leading to new energy sources, new risks requiring new regulation and new commercial struc-tures will soon follow.

Oil and gas was first produced in the 1960s from what was then considered one of the toughest environments possi-ble, beneath the ocean floor. The industry has matured and legal practice has played a significant role in shaping its structure. The two have forged a healthy relation-ship, framing industry standard practices.

We helped develop standard agree-ments like the LOGIC contracts which

are designed to reduce the costs of pro-curing goods and services, and the stand-ard joint operating agreement, which is the bedrock of the joint ventures which operate oil and gas fields around the world but which needed to be tailored to the particular legal regime of the UK.

As the sector matures, its legal frame-work evolves alongside it. For instance, as fields approach the end of their life, the question of who will pay for their decom-missioning becomes paramount. We played a pivotal role in establishing the standard decommissioning security agree-ment which outlines clear responsibilities for the costs of decommissioning and we are now working with industry and gov-ernment to put in place a mechanism to guarantee tax relief for decommissioning, potentially releasing millions of pounds tied up in security for investment.

How does this history equip us to address the new frontier of unconven-tional gas development? Judging from the Gas Generation Strategy, there is to be no wholesale rewriting of the regula-tory regime for the unconventional sector — the current onshore licensing regime operated by DECC will continue to apply, although ‘OfShale’ will offer something of a one-stop shop for those needing permits to operate and there will be rigorous envi-ronmental requirements to address the specific risks of fracking. However, as has already been done offshore with ‘promote’ and ‘frontier’ licences, DECC will consider whether the duration and terms of licences need amendment to address the specific requirements of the unconventional sector.

The contractual framework developed offshore is also flexible in its applica-tion and can be applied to the needs of a developing unconventional market – the task of the legal community will be to analyse where the commercial and legal risks of this sector differ and how exist-ing structures need amending to allocate those risks effectively.

But the real challenge for unconven-tional gas will not lie in anything DECC can regulate or a legal hand can guide, structure or circumvent. Instead, it will

rest in a battle of hearts and minds. Chan-cellor George Osborne cited tumbling gas prices across the Atlantic as motiva-tion to consider shale gas. But prices in the US have only tumbled because of relatively low production costs and the volumes in the market. If public percep-tion prevents large scale production then we are unlikely to experience a shale gas miracle similar to the US.

In the US landowners own any oil or gas found beneath their property, giving them an incentive to pursue development. In the UK the Crown owns resources below the surface and can and does grant licences to third parties to develop them, without reference to or compensation for the landowner. However, access is still required. In Star Energy v Bocardo, the Supreme Court set a valuable precedent by allowing an operator to drill laterally to access gas underneath adjoining land where a landowner refuses direct access, without substantial payment unless dam-age is caused. But even this requires access to a site from which to drill. In addition, while shale gas can ultimately be produced from a relatively unobtrusive facility, the development phase requires roads to transport equipment and large amounts of chemicals to the site, as well as a substantial water supply.

All of this requires planning permission and community support. This is where public perception comes into play. Delays and additional costs resulting from plan-ning appeal after planning appeal have plagued the onshore wind industry and could do the same for shale gas.

The oil and gas sector has produced conventional resources onshore for many years with minimal problems and the legal community is capable and ready to support the move to unconventional. But if the DECC is really relying on shale gas to meet the gap in its energy projections then collaboration is required between industry, the government and legisla-tors to tackle misperceptions about the risks involved.Penelope Warne is the head of Energy at CMS Cameron McKenna.

Inside ...CommentaryPeter Jones on why we should look at China’s success as an opportunity Page 4

Flexible workingThe business case for more time with the family Page 5

Cover storyThe Scottish Energy Minister spells out his strategy Page 8

Special featureIndustry leaders explain why their businesses matter to the future of energy Page 10

Alternative energyBritain looks to the new American revolution Page 15

Here the real challenge will rest in a battle of hearts and minds

The legislative lid has been lifted on unconventional gas. There is a new energy frontier and it’s here on our doorstep, writes Penelope Warne

Collaboration needed to deal with debate on perceived risks

Marcellus Shales gas site in northern Pennsyvania where

the sector has been a game changer for the industry

COVER IMAGE: jAMEs GlOssOp fOR thE tIMEs

Tuesday December 11 2012 | the times

Power of Scotland4

Yesterday the Canadian govern-ment was due to say whether it approved or not of a $15.1 billion (£9.4bn) bid for Nexen, a big Canadian oil firm headquar-

tered in Calgary, by the China National Offshore Oil Corporation (CNOOC).

The bid, approved in September by shareholders anxious to grab a 60 per cent premium on the share price, has stirred a big debate in Canada. At the time of writing, it seemed likely that prime minister Stephen Harper would risk some public backlash and approve the deal.

The big Canadian worry is that CNOOC is state-owned. Slightly more than a quarter of Nexen’s assets are in Canada, prompting nationalist concerns about a foreign and, to Canadians, slightly intimidating, government with a poor human relations record owning a major part of Canadian industry and reaping the profits from it.

CNOOC has done its best to soothe concerns, offering to establish a head-quarters in Calgary to control its $8 billion of other North American assets and to retain the Nexen workforce, an olive branch which will have a familiar ring to Scottish ears. The Canadians have turned down some foreign bids before,

including Anglo-Australian BHP Hilton’s 2010 bid for a potash mining firm said to be important to the economy of Sas-katchewan. Mr Harper, however, has laid a lot of importance on attracting foreign investment, particularly as Canada wants to expand oil and gas production from its vast western shale deposits.

Nexen is also one of the biggest North Sea producers. It operates the Buzzard field, currently the North Sea’s biggest producing field, has interests in the Ettrick/Blackbird and Scott/Telford fields and a share in the Golden Eagle field which is due to start producing in 2014.

Altogether, Nexen’s share of produc-tion is slightly more than 100,000 barrels of oil equivalent per day (boe/d) which should rise to 125,000 when Golden Eagle comes on stream.

Add in the fact that last year Pet-roChina, another government-owned company, paid Ineos an estimated £625 million for a 50 per cent share in its Grangemouth refinery, which processes 210,000 boe/d and, assuming the Nexen deal goes through, the Chinese govern-ment will own a significant chunk of Scot-land’s oil industry. Viewed from a political perspective, this is slightly troubling. British politicians come under constant

pressure to tell the Chinese to clean up their human rights act. Recall the rumpus kicked up when it appeared the Scottish government was snubbing the recent visit to Scotland by the Dalai Lama, spiritual leader of Chinese-occupied Tibet.

But from a business, economic, and long-term political perspective, it is a good thing. It is hard to see why Chinese ownership of oilfields should be any more problematic than Canadian or US ownership. Chinese aims in securing these deals are basically two-fold. First they have vast amounts of money, some £2.5 trillion in foreign currency reserves

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15 Investment from China to Europe (€bn)

Investment from Europe to China (€bn)

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alone, which they want to invest.That is not just to secure a return, but

also to gain know-how in strategic sectors. The Chinese have big shale oil and gas deposits which Nexen’s expertise will help them develop as Ineos’ knowledge will help develop downstream refined products and chemicals production.

And if British firms want to operate in the vast Chinese market, then the quid pro quo is that the Chinese should be free to operate here.

Scare stories that the Chinese are using their wealth to take over the world look to be just that. Rather surprisingly, in the last five years European investment in China, at just over €27 billion has out-stripped Chinese investment in Europe at just under €25 billion (see chart).

It boils down to a simple equation: our businesses and industry need the Chinese market of 1.4 billion people for economic growth and the investment they can bring to our shrivelled post-financial crisis market; the Chinese need our expertise to develop their assets and ensure continued rising prosperity for their people.

Because this is a two-way street with the flows operating to mutual benefit, it is non-threatening, quite the reverse. The gift of pandas to Edinburgh zoo as the Ineos deal was sealed and expressions of interest in Scottish renewable energy expertise were made symbolises that that is how the Chinese see it.

It will give the Chinese much greater political clout in the world, sure, but it also gives them an interest in the prosperity of the west too. That can’t be a bad thing.

If we want to operate in China, they should be free to operate here

Peter JonesLong march of China is route to important mutual benefits

sOuRCE: pRICEwAtERhOusECOOpERs


Human resources

View our interactive edition online

www.times-energy.co.uk

If there’s any one big factor which is holding back the development of the oil and gas sector, it’s the con-tinuing skills shortage. Companies of all types need talent, much of it specialised, and the lack of suit-ably qualified and experienced people coming through the jobs pipeline remains a major issue.

There are, though, some poten-tial solutions — and one of these is to re-think the way in which staff are employed. If companies can introduce flexible work-ing, allowing people to do their jobs on flexitime, for a reduced number of days a week or even from home, it can make a real difference at little or no cost.

There are some parts of the sector where flexible working isn’t an option — on the rigs, for instance, 12-hour shifts remain necessary and changeovers are pre-determined by helicopter flights — but in many operations, there is real scope for new thinking.

In some companies, this is already happening. “We are seeing some clients become more flexible,” says Greg Mack-intosh, director of the Aberdeen-based recruitment company hazell Engineer-ing. “For instance, this is very much a transient working market — up to 70 per cent of those employed in Aberdeen travel in — and a lot of people go home for the weekend.

“In some cases they can now start later on a Monday, make up their hours during

the week and then leave early on a Friday to maximise their time off.”

Change is also being applied to make jobs in the sector appeal to a vital sector of the population: working mothers who need to organise their childcare. “On the staff side, companies tend to have core hours, with flexibility around these,” Mackintosh explains.

“That means they can accommodate the requirements of women who need to drop their children off from school before coming to work or to pick them up afterwards.

“Flexible working also offers other possibilities — a nine day fortnight, for instance — with perhaps every second Friday off. That can be done by allow-ing people to make the time up by taking shorter lunch breaks, or by letting them come in half an hour earlier in the morn-ing or work a bit later at night.”

Introducing flexibility can be more dif-ficult when it comes to contract staff who are working with client organisations. The contractor is usually required to make them available for a certain number of hours a week (45 remains the stand-ard) between Monday and Friday, and clients are reluctant to demur from this.

Flexible working may now creeping be into the sector, but there is still a long way to go before it becomes the norm. Dean Hunter, managing director of the Edinburgh and Aberdeen-based HR and management consultancy Hunter Adams, was previously Global HR Direc-tor at the oil and gas giant Production Services Network (PSN).

He says that workplace flexibility remains something of a dirty word in the oil and gas industry. “The thought of a four day or compressed working week is still a stretch for many companies to contend with. But where companies have introduced flexible working, it has had a direct benefit in terms of retaining staff and has made the workplace more attractive.

“The problem is that a lot of them haven’t jumped on the bandwagon yet. Yet it’s one of the things employees are looking for and not to get involved is a missed opportunity.”

Hunter believes there needs to be more of a recognition that workforce needs and attitudes are changing — childcare requirements aren’t the same every day, for instance, and for some people, a work-ing life isn’t everything. They have other things they want to do and would like to be able to arrange their employment in a way which caters for that.

“Treating everyone in the same way doesn’t work all the time. We should be recognising the power of the individual. For instance, when I was at PSN, we reduced our staff turnover from 40 per cent to 7 per cent in two years and flex-ible working was one of the main reasons for that.”

Hunter practices what he preaches: of his management team of five, four work

part-time to suit their own needs. Among them is Jenny Scrivener from Pitmed-den, Aberdeenshire, who changed jobs to accommodate her two-year-old son Charlie’s nursery schedule.

‘Now I work just over seven hours for four days a week and there’s no rigid start and stop time,” she says. “If traffic is heavy I don’t have to stress about being late and if it’s light I can get in earlier and leave that bit earlier.

“I feel like I’m still able to fulfil my career ambitions and at the same time give my child the attention he deserves without thinking I’ve let him down.”

Scrivener says that some companies still find flexible working difficult to under-stand. “Just because you work part time from home or have a more fluid arrange-ment doesn’t mean you don’t work your socks off. If anything, you find yourself putting in more effort, as you understand and appreciate what the trade-off is — more time with your family.”

The energy industry is realising that family-friendly working practices can reap real dividends, says Andrew Collier

Jenny Scrivener of Hunter Adams says flexible working allows more time with her son Charlie and encourages professional effort

Flexible working opens new windows


Power of Scotland6

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Innovation and technology have helped power Scotland’s oil and gas industry through the last 40 years, and as the sector drives forward into the next half cen-tury, they are crucial to maximis-ing both recovery and continuing development.

With Scotland’s industry-driven oil and gas strategy targeting

higher long-term recovery rates, greater exports and £30 billion annual sales by 2020, the game is on to make the most of opportunities for growth.

Industry body Oil & Gas UK confirms the drive to maximise oil and gas pro-duction from the UK’s mature offshore province is a major stimulus for innova-

tion. There will be ever greater technical and economic challenges to overcome to realise the full potential of the estimated remaining 24 billion barrels of oil and gas still to recover from offshore, however the UK has a long history of engineering excel-lence, and today the country is still a world leader, particularly in subsea technology as the industry moves into ever deeper waters and more difficult reservoirs.

Some 60 per cent of all new UK oil and gas developments are carried out using such technologies, developed in this country but today being marketed world wide. In fact, overall exports of UK oilfield goods and services account for some £6 billion in international sales per annum.

“Companies are currently spending

Exciting developments lie below surface debateAs the lifespan of many fields continues to increase, more companies are realising the value of existing infrastructures rather than viewing them as liabilities, writes Ginny Clark

This sector has an aptitide for innovation that is sought throughout the globe

Evolving assetsAn illustration of how Enegi’s buoy technology can be used in the development of remote fields

around £17 billion a year on exploration, oil and gas development and in produc-tion operations on the UK continental shelf,” says Malcolm Webb, Oil & Gas UK’s chief executive. “This presents excellent opportunities for Britain’s diverse and versatile oilfield goods and services companies. This is a vibrant, technology-driven sector which over the past 40 years has developed an aptitude for technical and operational innovation which is highly sought after, not just in the UK but also around the globe.”

In the North Sea, the investment over four decades has produced around 40 bil-lion barrels of oil equivalent (boe), and that has meant around £300 billion in revenues for the UK. In doing so, this has also resulted in the creation of around 630 offshore oil and gas installations in the North Sea, along with 10,000 km of pipelines, 5,000 wells and numerous sub-sea clusters.

Although the wholesale value of reserves remaining to be extracted is estimated to be up to £1.5 trillion from 24 billion boe, the increase in net present


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value (NPV) to be gained from extend-ing the life of the major companies’ large and complex infrastructures in the twi-light years of the underlying reservoirs is often low in their investment portfolios, especially when any future value needs to come from third party business.

Yet if not cared for, they would have to be decommissioned, potentially stranding smaller fields and choking the investment opportunity of the smaller company. Sell-ing the asset on to a smaller operator, allowing them to bring in their expertise in extracting the remaining volumes, is one solution that has worked to great success.

A second is to invest in new infra-structures or enhancements to existing infrastructure on the basis of processing and transportation tariffs, turning the infrastructure into the asset, and the structural integrity an investment, rather than a cost.

As the latest licensing round dem-onstrated, the opportunities are clearly there for companies to expand the lifes-pan of smaller fields. However, encour-aging investment is crucial to this. Iain Morrison, VP technical excellence and knowledge management at leading

global energy services company Senergy, said: “Far from being decaying liabilities, existing infrastructure offers many devel-opers the only possible option to bring oil and gas to market, therefore maintaining this infrastructure is critical to success. However, with ultimate recovery from UK oil fields expected to be only 46 per cent, it is imperative that the Chancellor offers confidence to investors to allow developers to recover more.

“While the Brown Field Allowance announced in September, 2012, is a step in the right direction for existing fields, and the increase in the Small Field Allowance is welcome, many marginal discoveries will remain undeveloped unless licence-holders can be incentivised to work on cooperative developments to help them to manage the costs of accessing exist-ing infrastructure. This is also important, given that much of the technology exists to enhance recovery from existing oil and gas fields but again is dependent on the infrastructure remaining offshore.”

One company aiming to do just that is Enegi Oil, having made two success-ful applications for licences in the recent 27th round that were based on the identi-fication and evaluation of assets suitable for development using buoy technology, because the conventional development solutions may not be economically fea-sible. Key to Enegi’s selection of the licences was not only a clear indication of the presence of hydrocarbons (Block 22/12b contains the Phoenix discovery which showed a 30ft oil column and Block 3/23 contains the Malvolio pros-pect), but remoteness from available

infrastructure and a physical environ-ment that would allow a buoy to be suc-cessfully implemented.

Buoy technology has the potential to facilitate the development of smaller remote fields that have been deemed marginal or non commercial. This tech-nology reduces the capital and opera-tional costs required for the development — and therefore reduces the economic thresholds.

Enegi, holding 100 per cent of the licences, has a partnership with ABTech-nology, the company with access to this buoy technology and who have Wood Group PSN as a strategic partner, to ensure the projects will be delivered.

“Buoy technology is very appropriate for certain types of marginal field for the UKCS and we are delighted to have been awarded these blocks with a view to implementing it,” said Alan Minty, CEO of Enegi Oil. “We specifically identified these licences as they are in the optimum operating envelope for ABT’s buoy tech-nology. We believe that this technology offers the best chance of commercialising the discoveries and prospects that have already been identified on these licences.”

Malcolm Webb points to the UK’s diverse goods and services companies

Ian Morrison highlights need for investment to expand lifespan of smaller fields


Power of Scotland8

Rather unusually for November, a south wind is whipping through the streets of Edinburgh, keeping the bite of winter at bay, but churning up the leaves and litter nonetheless. Fergus Ewing, in consider-

ing Scotland’s energy industry ambitions, reflects the sense of ease created by this temperate spell, and allows himself a moment or two of laughter. As the Scot-tish government’s Minister for Energy, the subject of discussion could not be more serious: the pathway to sustainable energy for Scotland, and making the most of the country’s rich energy resources.

However, Ewing says, it’s always worth reminding people, that here in Scotland “we’ve taken what has always been seen as a huge negative in term of our international image, and turned it to our advantage”. Bad weather is, increas-ingly, good business for Scotland. Ewing happily extends this contrary principle beyond renewables, however, also point-ing out that in Scotland’s oil and gas industry, if you can make it offshore in the maelstrom of our seas, you can make it “anywhere”.

For Ewing, and for the Scottish gov-ernment, supporting both aspects of the country’s energy resources is vital to the economy, in retaining and creat-ing jobs, and in generating both revenue and power. It is an enormous source of pride to Ewing that underpinning the increasingly successful North Sea oil and gas industry and subsea sector, and also the burgeoning renewables industry, are those same qualities of enterprise, inno-

vation and resourcefulness that have forged Scotland’s reputation in science and engineering from the days of James Watt and the steam engine onwards.

“It is a great privilege,” says Ewing, to be tasked with driving the 2020 route map for renewable energy, while also develop-ing the oil and gas strategy over the same period. “This is a hugely exciting period for Scotland’s oil and gas industry,” he says. “Of course, we’ve already excelled in this sector, in terms of what has been achieved over almost 40 years, and our oil and gas strategy will focus on the next eight years, targeting higher long-term recovery rates, greater exports and £30 billion annual sales.

“Oil was first discovered in the Argyll field in 1975, and just two years later, the Clair field was in production. It’s interest-ing that BP has recently announced it will still be extracting from there in 2050. What more ample demonstration that those politicians from London-based par-ties were wrong on an enormous scale? Oil was supposed to run out in 1982, then later in the 1980s, then the 1990s … and the noughties. The truth is it’s going to be around for another half century and possibly a lot longer.

“Scotland is now on the verge of a sec-ond era of progress for the industry, but this time, instead of starting from zero or close to it in terms of employment, we now have around 200,000 people work-ing in the sector in Scotland, and instead of being pioneers in the areas of drilling and extraction, we are now world experts, and world leaders. One company working in an offshore field in Australia is using technology and equipment designed from in Aberdeen.

“We’ve become the best in the world, and this time we want to ensure Scotland get the advantage from this, and not for that wealth to be squandered and wasted. We have worked with the industry lead-ership group (ILG) in devising the new oil and gas strategy with a number of clear objectives, all of which the industry have identified. In fact, this is as much an industry strategy as a Scottish govern-ment strategy; it’s private sector led.

“The aim is to maximise recovery, by using expertise and experience; engineer-ing, excellence and innovation. If one per cent more oil and gas is recovered over the life of projects, this will lead to a fur-

Fergus Ewing explains his government’s vision of a future that aims to integrate North Sea resources and renewable energy to Ginny Clark

Cover story

The man behind the hot deskther £22 billionn in tax — just think of the opportunities that presents for the economy, such as improved health care, and employment opportunities for young people. This will be a glittering prize for Scotland.

“Comparing then, back at the start in the 1970s, to now, there is a huge differ-ence to the oil and gas sector. We had no industry as such, and yet now we have Aberdeen as an internationally recognised capital of the industry. Yet one statistic is not often understood here, that the Scot-tish oil business makes almost half of its revenue from international work, around 47 per cent. That means half of our wealth is created by applying our expertise. If you look at the segment of the world that is the strip of the similar time zone, across Europe and the Middle East, North and South Africa, much of that work is done and controlled from Aberdeen.

“As minister I’ve spent a lot of time in Aberdeen, and we want to support the north east’s economy through improved infrastructure, with developments now in the plans for a bypass and fast-link road and with new Easyjet routes. We want more connectivity for the area: it’s immensely important for retention of the industry and jobs in Aberdeen.

“We’re also assisting more of the oil and gas SMEs to grow, as if they have already succeeded in the seas off Shet-land … Well, if they can do it there, they can do it anywhere. If they have a device, a valve, a patented process or an expert training function, and if they have shown it can work in the gruelling environment of a rig west of Shetland, then they are capable of achieving more. So we are increasing massively the no of companies that get our account management ser-vice, and this will help them grow — the SMEs of today could be the Woods and Cairns of tomorrow.

No one has a crystal ball, but there is a huge amount of planned investment. If you ask an oil and gas company in Libya, ‘will you do business in

Scotland?’, then of course they’ll say they will. What is important to the industry is a stable and predictable fiscal regime, it’s a sign of success. We can’t ignore the folly of the three tax hikes, and the potential long-term impact. However, we are work-ing positively with the UK government, so far as engagement is concerned we want to keep party politics out of it, and the UK government now welcomes our strategy as a broad approach,” says Ewing.

“If we only recover 40 or 60 per cent of what is left, from a global point of view it would be sensible to use sub sea techniques as far as possible so we don’t replete a finite resource. It’s about hus-bandry, stewardry.”

It’s clear that Scotland’s investment is driving much more than business suc-cess, it’s also creating a new and valuable resource; increasing the export of skills and expertise that have made Aberdeen and the North Sea a world-leading centre of innovation in advanced sub-sea tech-nologies. Now, with Scotland on target to exceed its interim target of meeting the equivalent of 31% of its electricity demand from renewables by the end of

2011, the renewables sector will also prove an important hot-house for knowledge and expertise, but will also drive the export of energy itself, with — regardless of Scotland’s status in terms of independ-ence in years to come — production of a surplus that will be vital for supply across the UK.

“We want England to succeed,” says Ewing. “It would be a co-operation between equals. What we’ve done is set out a number of clear targets for 2020, which have now been recognised by European and world specialists and have themselves been instrumental in recruit-ing capital and inward investment, and job creation. The aim is to meet the equiv-alent of 100 per cent of electricity genera-tion from renewables in eight years time, with 50 per cent to be achieved by 2015.

“With renewables projects totalling at least £2.4bn being completed in Scotland over the last year, there are significant

Aa prototype marine generator tested by OpenHydro is part of a “hot-house” of renewables expertise

The Scottish Energy Minister, Fergus Ewing, in his office at the Holyrood Parliament


pICtuREs by jAMEs GlOssOp fOR thE tIMEs

economic benefits. Renewable energy now supports more than 11,000 jobs in Scotland, and with Gamesa, Samsung, Mitsubishi and Areva now committed to investing in Scotland, together with the terrific success of our own indigenous Scottish Power — and grid improve-ments totalling £7 billion — this will keep many people in the engineering sector employed over the next 15 years. At a time they might have been in difficulties, they have a sustainable future. We’re also providing financial support in the shape of a £103 million investment fund, to support tidal and wave power technol-ogy, and along with the funding from the Saltire Prize, this is all effectively promot-ing nascent technology for offshore wind, wave and tidal energy, and supporting local communities in gaining great ben-efits for them.

“We support integration, even after independence, of the UK energy market.

The man behind the hot desk

ister is working to provide a sustainable offshore wind industry in Scotland and England, and that success could bring £30 billion into Scotland and up to 28,000 direct jobs plus 20,000 indirect jobs.

“In addition, we have great ambitions for carbon capture storage, and pre-eminenece in bio fuels, and the Green Investment Bank in Edinburgh will help develop that economy, and we’re now see-ing communities all over Scotland start-ing to see real tangible benefits emerge.

“We recognise there are huge chal-lenges facing us all, both regulatory and practicality, but we are quietly and relent-

lessly addressing them together with Ed Davey. This involves looking at Electric-ity Market Reform (EMR) with incentives for renewables, to harness the power of green energy, to engineer down the cost of offshore wind, and to help overcome the practical problems facing communi-ties, such as negotiating grid connection and arranging finance.

“What is remarkable is our success so far, what we have already achieved. Who would have predicted in 2007, other than Alex Salmond, that in 2012, Scotland would have more jobs in the renewables sector than in the whisky sector?”

This has been questioned but is more polemic than rational — integration is the only conceivable option anyone could pursue who has England’s best interests at heart. I refer to Ofgem’s October warning that there is a serious danger the lights will go out in England after 2015, and approvals from the regulator of quadru-pling our export capacity to England is corroboration of the argument they need Scotland’s renewable energy.

The 14 per cent headroom of spare capacity, that can be demanded at certain peak times, has gone; it might be four per cent by 2015. Of course, some energy insiders

question if they should have made that warning several years ago. However, we want to work with England and UK energy secretary Ed Davey is a great advocate for offshore wind energy. The First Minister along with the Prime Min-

We support integration, even after independence, of the UK energy market

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The map to key targetsThe oil and gas strategy in brief — devel-oped and to be delivered by industry, the Scottish Government and public sector partners — identifies six priorities for action.lTo strengthen domestic supply chain, with greater focus on resource recovery and targeting £30 billion in annual sales by 2020l To increase proportion of sales from exports, boosting international activity to 60 per cent (£18 billion) in the same periodl To identify clear priorities for innovation and accelerating technology deploymentl To promote new and emerging oppor-tunities for supply chain companies, such as in offshore wind, carbon capture and storage and decommissioningl To support increase in skills availability

and, through closer liaison between sector employers and with education institutions, better-identify specific needsl To continue to promote Scotland as the key location for O&G investment through communications and support for key infrastructure projects.

The Scottish government’s 2020 route map for renewable energy — announced in 2009, the target is to meet the equiva-lent of 100 per cent of Scotland’s elec-tricity demand from renewable sources. A new interim target announced in October stated that renewable genera-tion should account for the equivalent of 50 per cent of Scottish demand by 2015. The majority of the new target is to be met by hydro and onshore wind, with offshore potential expected to take this up to the 100 per cent target overall.


Power of Scotland10

Views from the top

Peterhead Port Authority develops and maintains the highest quality of harbour infrastructure and services, including the deepwater facility Smith Quay. Vsit www.peterheadport.co.uk.

It has supported development in the UK’s oil and gas sector for over 35 years and today has a crucial role in the Government’s ambitious National Renewables Infrastructure Plan. To put it simply, the excel-

lent facilities provided by the Peterhead Port Authority underpin much of the success of Scotland’s current and future renewables industry.

An east coast location, close to several potential offshore wind project sites, has made Peterhead the natural choice for vessel handling for offshore construction, operations and maintenance for wind farms, as well as spin-off business activity.

Aberdeenshire also offers a great wind resource for onshore wind turbines and the port regularly handles the import of turbines for installation in the north east.

Peterhead Port Authority is working closely with strategic partners in the local area to ensure it can offer an outstanding service to the renewables market. Aside from its advantageous location, the port provides a range of essential support such as experienced, qualified personnel, full pilotage, radar and radio monitoring.

The recent £33.5 million development, Smith Quay, strengthens Peterhead’s involvement in the country’s burgeoning renewable and decommissiong sectors. The easily-accessed berth with 10 metres water depth is able to accommodate ves-sels up to 180m in length adds to more than 3km of existing alongside berthing. Smith Quay also boasts a working area of 16,000 sq m – including heavy-lift and

module skidding capabilities, combined with full quayside servicing. Repairs, component manufacturing, fabrication and project mobilisation can now be done on the quayside.

The land is supported by the recent investment by Scottish Enterprise in the nearby Energetica Business Park which offers a further 30 acres for industrial and office accommodation targeted at energy related businesses.

Opened in 2010, Smith Quay lies at the north end of the 30-mile Energetica corridor, which links Peterhead to Bridge of Don in the south and Aberdeen Air-port in the west.

The facility has been the catalyst for attracting many larger subsea projects to Peterhead and the port has experienced a successful year, reporting record com-mercial vessel activity in October. For the first time it recorded over 1 million gross tonnes of shipping in a month, represent-ing 274 commercial vessel arrivals mainly associated with servicing the offshore oil and gas sector.

Gross tonnage of shipping over the first 10 months has also increased, being 22 per cent higher than in the same period in 2011. The largest increase was in the subsea oil sector, where the number of vessel calls rose by over 60 per cent.

In fact, the port has already passed last years total for shipping tonnage and number of vessel arrivals. The increasing size of vessel has also impacted on the pilotage service, where four additional jobs have been created to help cope with

Port offers natural choice for excellence

Peterhead Port is well suited to the new generation of larger subsea vessels with its deepwater berth

– John Wallace, chief executive,

Peterhead Port Authority

the increased workload.Stephen Paterson, chief financial

officer at Peterhead Port Authority, said: “Several berths at Peterhead Port provide deepwater berthing and heavy lift capability but Smith Quay has the added advantage of a large and secure working area next to the berth. This has brought a lot of work to Peterhead that could not previously have been handled.

“Recent projects that we’ve handled include mobilizations’ which involve quayside fabrication, decommissioning of subsea equipment and storage of reels and other large items which are not readily transportable by road. By utilising quayside space clients can achieve large savings in craneage, transport and time.

“Looking to the future, we are actively targeting work associated with offshore wind farms and decommissioning.”

John Wallace, chief executive of Peter-head Port Authority, said: “The increase in trade is very welcome and we’re look-ing to build on this success. Peterhead Port is well suited to the new generation of larger subsea vessels with its deepwa-ter entrance and berth, and easy access to the trunk road network. Peterhead is ideally placed to service offshore oil and gas activity in terms of proximity to both offshore fields and the supply chain. This leads to efficient port calls with the minimum of time spent in port.”

With oil and gas sup-porting 440,000 jobs, half of these in Scotland, and the prospect of another

four decades of reserves, the sector is clearly crucial to our future pros-perity. The Scottish Government has set a traget of £30 billion annu-al sales by 2020 and the challenge-for the industryis developing the skills and technology and nurtur-ing the talent to deliever that. On these pages a broad panel of sector leaders outline the innovative steps their companies and organisations are taking in areas that range from

drilling to decommis-sioning, via port facili-ties, public sector initia-tives and part-nerships and recruit-ment – both of experienced personnel and the much-needed injection of talented youth – to en-sure the future success of the indus-try. They do not shy away from the obstacles and the scale of the task but there is a consensus that Scot-land is alive to the possibilities and has the potential to exploit them.

Game is on for future success


Decom North Sea is a decommissioning forum established to tackle areas of weakness and bottlenecks inhibiting UK decommissioning supply-chain capability. Visit www.decomnorthsea.com

Scottish Enterprise works with ambitious companies and industries to stimulate economic growth and develop the country’s dynamic business environment. Visit www.scottish-enterprise.com

The pace of decommission-ing offshore oil and gas assets and infrastructure is forecast to grow significant-ly in the coming years, and the industry is gearing up to

support this major programme of activity. Industry forum Decom North Sea (DNS) is leading and facilitating a number of industry initiatives to develop models and guidelines for the sector, improve efficiency and contain costs.

Next year is expected to see the submis-sion of more decommissioning programmes for approval by the regulators, more plugging and abandoning (P&A) of wells, the award of some major contracts for transportation and onshore disposal and some further decommissioning projects of subsea and southern North Sea assets.

Professor Alex Kemp from the Uni-versity of Aberdeen estimates the cost of decommissioning some 550 fixed, floating and subsea installations in the UK Conti-nental Shelf alone to be £30-£36 billion between now and 2040.

DNS chief executive Brian Nixon explains: “DNS is by no means trying to accelerate the pace of decommissioning but is trying to increase the pace of inno-vation and efficiency in the industry and a steadier flow of projects would help to stimulate the investment needed to bring this forward.

“More and more companies in the supply chain are becoming aware that now is the time to work towards secur-ing projects. A major part of our role is to work with the supply chain and to

stimulate the preparation, collaboration and innovation needed to secure this vital market opportunity.”

DNS and the Department of Energy and Climate Change (DECC) have recently launched a streamlined template for the submission of decommissioning programmes. DNS has been running this initiative over the past six months in col-laboration with DECC and a workgroup of DNS member companies (BP, Talisman, CNRI, Marathon Oil, GP Decom and Optimus Projects) with additional input from Perenco and Wood Group PSN.

Following a series of facilitated workshops with the workgroup members, DNS created a draft template, which was circulated to government departments, industry and other stakeholders. Over 50 responses were received and collated into a final draft document by DNS and DECC. This has now been ratified by the workgroup and the template will be run as a test case with a small number of op-erators during Q4 2012. Updates arising will be incorporated into a streamlined template which will be adopted by DECC in January 2013 for a one year trial period.

Says Nixon: “This has been a great first example of DNS members working col-laboratively with government to deliver something which will help the industry to get their decommissioning plans author-ised more quickly and easily by DECC.”

Another initiative being discussed re-lates to the potential for greater refurbish-ment and re-use of plant, equipment and modules from hydrocarbon facilities once they have ceased production. There have

THE oil and gas industry is one of Scotland’s biggest success stories and a vital component of its continued economic growth. Scottish Enterprise is playing a key

role in safeguarding the sector’s future through the delivery of a range of specialist support services. The agency works closely with companies and organisations, provid-ing advice, support and expertise in a wide range of areas including strategic growth, funding, export matters, market analysis, technology and innovation support.

This year saw the launch of the indus-try-led oil and gas strategy which aims to build on the sector’s success to secure future growth. Key targets are achieving higher long-term recovery rates, increas-ing exports and reaching annual sales of £30 billion by 2020.

Explains Scottish Enterprise’s head of oil and gas, David Rennie: “The strategy brings together industry, Scottish Govern-ment and other public sector partners to look at how Scotland can make a real difference in the oil and gas sector. It identifies six main areas for action. These include strengthening the domestic supply chain, increasing export sales, identifying innovation priorities and promoting new opportunities for supply chain companies.”

Other key areas ensure the sector con-tinues to attract talented young people, and the ongoing promotion of Scotland as a key location for oil and gas investment. “Scotland has a real advantage as it has 40 years of experience to build on. There’s a

great deal of optimism in the industry and a strong message that the next ten years are going to be very good for the North Sea,” says Rennie. “Growth itself can cre-ate challenges, and areas such as invest-ment in innovation and finding skilled people are crucial to continued success.

“A few years ago the sector was seen as being in decline, but this perception has now reversed. The North Sea has enough oil and gas to ensure production for the next 40 years. There’s a huge amount of activity in the sector, and major opportu-nities for maximising what we’re getting out of the North Sea, as well as increasing-ly developing international opportunities.”

He adds: “Around 40 per cent of Scot-land’s oil and gas reserves have been recov-ered, while in Norway the figure is around 50 per cent. Our long-term challenge is to move towards the 50 per cent figure.”

Scottish Enterprise is funding a series of innovation calls on technology priori-ties with funding of up to £10 million to support innovation on issues such as asset integrity, subsea and seismic imaging.

Asset integrity is a key trend within the industry, with increasing amounts being spent on the maintenance of facilities and equipment, explains Rennie.

The subsea market is another major growth area. Although technical and commercial challenges are considerable, the opportunities for Scotland have never been better, says Rennie.

Scottish Enterprise has partnered with industry body Subsea UK to produce a series of reports to raise awareness of the

Innovation at heart of decommissioning

Vital partnerships for strategic growth

There’s great optimism and a strong message that the next ten years will be good for the North Sea

– David Rennie Head of Oil and Gas,

Scottish Enterprise

More companies are becoming aware that now is the time to work toward securing projects

– Brian Nixon, Chief Executive

Decom North Sea

been very few examples of re-use in the North Sea, while other parts of the world are reported to have thriving markets.

DNS has been appointed as project-manager of a Joint Industry Project (JIP) on behalf of partners Marathon Oil, BP, Shell, CNRI and DECC to promote the reuse of equipment following oil and gas decommissioning. The output of the JIP will establish what must be done to stimu-late the reuse market and the feed-stock of equipment which will be delivered to shore during forthcoming years.

Given the potential economic, envi-ronmental and market benefits, it’s impor-tant for North Sea industry and govern-ments to work together to overcome the challenges preventing reuse.

In addition to initiatives intended to improve efficiency in this nascent sector DNS has recently commissioned a study to assess the forecast market demand and to compare this with available industry capacity. It must be recognised that in the next five to 10 years the North Sea will place significant demand on industry with decommissioning being one area of overall activity.

DNS has over 230 members includ-ing operators, major contractors, service specialists and technology developers. The majority of the current members are from the UK but there’s a growing interest from Norway, The Netherlands, Denmark, Belgium and Germany.

business potential in international mar-kets. It’s also working to promote trade and export support services within the Scottish oil and gas supply chain.

“The subsea sector is one of the most successful subsectors over the last few years,” comments Rennie. “Aberdeen is a significant global hub for development with increasing numbers of projects being managed from there. Currently, around a third of the world’s subsea expenditure comes out of there.”

Scottish Enterprise is committed to supporting continued growth in interna-tional markets through its overseas arm, Scottish Development International. It has recently opened an office in Calgary and has plans for additional resources in Norway, Africa, Brazil and Australia. “Our industry-led strategy includes a clear vision internationally,” says Rennie. “We’ve identified ten priority markets. These represent a mix of markets that are big at the moment and the emerging.”

The renewables sector is also being supported through a range of Scottish Enterprise initiatives.

“This sector also stands to benefit from the experience and knowledge that Scotland has built up over the past four decades. We’re currently looking at key areas of commonality with offshore wind companies, as well as working with other businesses in the sector.”


Power of Scotland12

ACSEF is a unique public private partnership which brings the main players in economic development together to grow the local economy and enhance its quality of life. Visit www.acsef.co.uk

ITF is a global, not-for-profit organisation with 30 oil and gas company members. It is the only global collaborative R&D programme operating across continents. Visit www.itfenergy.com

With the second high-est GVA per capita outside of London and very low unem-ployment, Aberdeen City and Shire

continues to buck the trend in terms of economic growth across Scotland.

The oil capital of Europe is buzzing with unprecedented levels of activity in the North Sea, driven largely by sustained high oil prices and demand but also by recent incentives to stimulate oil and gas production. As the supply chain hub for the UK’s oil and gas industry, Aberdeen City and Shire has a global economy but much of the revenues largely generated in this region are not captured by or spent in the local economy.

This industry, on which we are heavily reliant, generates revenues of around £34 billion per annum and supports 450,000 jobs in the UK.

It contributes £32 billion to the bal-ance of payments, £7 billion in exports, £13 billion – a staggering quarter – of all Corporation Tax collected in the UK and £6 billion in corporate and payroll taxes.

Of the £34 billion generated annually, the Government tax take is 25.3%

While Aberdeen City and Shire only receives 14% of the GVA, zero percent of net revenues and none of the Govern-ment revenue share.

We fare better when it comes to our share of capital and operating expenditure with around £5 billion of a £12 billion total being spent in the region and £4.3 billion spent in the rest of the UK. Oil and gas

activity from Aberdeen City and Shire ac-counts for 16% of the total Scottish GDP.

It is clear from these statistics that neither the UK nor Scotland can afford to lose this contribution and our region must receive the investment it requires to become a global energy hub so that we can hold on to this industry in the long-term.

The inevitable decline in North Sea production could see operating expendi-ture falling by about 40 per cent from £4.2billion in 2010 to just over £2.5 bil-lion in 2020 and capital expenditure fall-ing by about 65% over the same period.

Direct employment in Aberdeen City and Shire is around 40,000 of which 77 per cent is attributable to UKCS activity and 23 per cent to export activity. An overall 44 per cent fall in both capital and operating expenditure would see the loss of 22,750 jobs between now and 2020.

The firms which are currently based in Aberdeen City and Shire, serving the UK and increasingly global markets will soon be asking themselves where they need to be located in order to best serve those markets in the future. Aberdeen City and Shire will not necessarily be that loca-tion. We face increasingly fierce competi-tion from Houston, Abu Dhabi, Kuala Lumpur, Perth Australia etc.

Scotland therefore needs to invest in Aberdeen City and Shire so that it can compete globally, so that it has the best physical and digital infrastructure for busi-ness and an enhanced quality of life that make it a vibrant and attractive place in which to live, work and invest.

Whatever some people may think, the North Sea industry is by no means dead. There’s a lot of life left; however, it’s

getting more difficult to find and extract the hydrocarbon resources. That’s the view of Max Rowe, Executive Chairman of ITF (Industry Technology Facilitator).

“We’ve got to use more technology and innovation to access scarce resources and use enhanced oil recovery to get more out of existing fields – both of which can be achieved through collaborative R&D.

“The other key priority is to prolong the life of the existing infrastructure. We have huge investment in this area which makes it possible to develop economically fairly small accumulations in the North Sea. If we were to lose that infrastructure, such developments would not be viable. Again, technology and innovation is key to prolonging infrastructure life.

“Aberdeen boasts a long heritage in the energy sector, from pioneers to world leaders, and I’m confident this will con-tinue to be its legacy.

“The industry has already switched from being a provider of subsea and deep-water expertise locally to being a global leader which does not depend on North Sea oil production. Aberdeen, and towns and cities like it across Scotland, boast a wealth of innovative, SME technology companies. ITF, which itself is a success-ful Scottish export, has a large network of developers but I am sure that we are

still only scratching the surface.“We really welcome and support the

government’s Strategy for Scotland and ITF played a large part in its creation. It’s not just a strategy of words; I think Scotland is a better place and the best place in Britain to be a small developer due to tangible support from Scottish Enterprise and other initiatives such as the three year funding package. ITF now has 30 global oil and gas operator and service company members and aims to have secured a further £50 million for technologies by 2015.

“The alignment across the industry is fantastic. We’re seeing PILOT really focused on the technology challenges. Enhanced and incremental oil recovery is a key focus area for PILOT and ITF has been supporting both these activities directly, looking not just at the technolo-gies but all the way through to the supply chain.

“The renewables sector is clearly impor-tant and I would make the assertion that at the moment it needs the oil and gas industry for knowledge and skills transfer. This can be done through DECC’s Energy Generation Supply Knowledge Transfer Network which is run by ITF. Renewables are not as constant a generation source as oil and gas, and oil and gas generation capacity will be needed as back-up.

“Like renewables, the burgeoning unconventional gas industry is creating a great deal of debate and scrutiny but ultimately, we have seen a real appetite for it, given its success in the USA and

Local investment for global opportunity

Collaboration key to enhance innovation

We need to become a truly global energy hub, attracting talent that will contribute to the Scottish economy

– Tom Smith, Chairman

ACSEF

The industry has switched from being a provider of subsea expertise locally to being a global leader- Max Rowe, Executive Chairman, ITF

In short, we need to become a truly global energy hub, capable of retaining and attracting companies and talent that will contribute to the Scottish economy.

If we can achieve this, we will see sustained high employment, increasing levels of exports, centres of excellence for skills and technology development recognised around the world and new private sector investment. This in turn ensures a significant return on investment for Scotland and the UK.

ACSEF is a unique public private sec-tor partnership bringing the major players in economic development together along with businesses to achieve long-term growth.

Integrated transport and connectiv-ity, attracting and developing skills, city centre regeneration, regional profile and anchoring an international energy indus-try are at the core of our plan to build a region which has a great reputation and profile and fit for purpose infrastructure that provides the tools for the develop-ment of a skilled workforce and delivers projects which create opportunities and enhance our quality of life.

We must secure public and private investment in these so that we have a 21st century city and a region capable of attracting and anchoring an international energy industry so that Scotland can benefit from the current oil and gas boom for many years to come.

Australia. ITF has been working with its members to provide a road map to investigate challenges and opportunities at each stage of development through exploration, extraction and production, which has been very well received and effective. I’m also glad to see that the government has recognised the potential of unconventional gas in its Autumn Statement with the announcement of incentives for shale gas.

“In ITF, we believe that the proven way to enhance technology and innova-tion is collaboratively. The organisation has facilitated the launch of more than 180 joint industry projects (JIPs) from early stage projects through to field trials and commercialisation.

“I have always said in the past that collaboration is only appropriate in areas where there is no direct competition. I’m revising that view.

“What I see now is that even in areas of competition you can collaborate and retain competitive advantage, through the integration and understanding of a particular innovation or technology into overall processes.

“I am seeing several of the ma-jor operators and service companies acknowledging that there is still a place to collaborate –and I think that’s quite a significant change. The collaborative space has got bigger.”


KCA Deutag is one of the world’s leading drilling and engineering contractors, operating in more than 22 countries and employing more than 2000 people globally. Visit www.kcadeutag.com

Carlton Resource Solutions is a local, national and international recruitment solutions provider of high-calibre temporary, contract and permanent staff. Visit www.carltons.com

KCA Deutag, the interna-tional drilling contractor for the oil and gas industry, will add more than 500 people in various locations around the globe in the next 12 months,

says Katie Powell, Group HR Manager, who explains the company’s strategy.

“Oil and Gas UK’s 2012 UK Continen-tal Shelf (UKCS) Workforce Demograph-ics Report revealed that 81 per cent of companies expect to grow over the next three years. To sustain this level of growth, the two greatest challenges noted are attracting appropriately skilled staff and rising labour costs. Given this situation, hiring and then retaining staff requires an innovative approach to people, their talents and ambitions. We are passionate about performing drilling operations to the highest safety and operational standards, but this means we must also be the best employer within the sector,

“Tailored development programmes allow our employees to understand the career journey they are on and how they can progress well within the organisation. Managers and engineers are expected to be the most difficult to recruit in the next five years. We have already developed original approaches to career progres-sion – for example, we are the first drilling contractor to be awarded accredita-tion from the Chartered Management Institute (CMI) for our in-house, bespoke senior leadership programme, The KCA Deutag Journey. This gives our training clout and relevance in the wider job mar-ket. We assure competence of our opera-

tional staff through our first class training programmes such as our flagship Safe-2-Lead course as well as implementing strict training matrices by the operations.

“As one of the world’s most mature oil and gas basins, personnel with UKCS experience are in much demand interna-tionally in developing provinces such as Brazil and Australia. As part of a wider training strategy for the industry, DART Services provides a realistic and practical solution to training and preparing drilling crews prior to the start-up of a new drill-ing rig, in teaching them how to identify and effectively manage well control situa-tions. This simulation-based training has become an integral part of our capabilities programmes for a variety of clients includ-ing BP, CNR, Shell, TNK-BP.

“We are also about to embark into a joint venture with Aberdeen’s Robert Gordon University, where new DART fa-cilities will be set up at their Energy Cen-tre. This collaboration will ensure training from early stages of formal education and also further technical development. In Azerbaijan DART Services has played a crucial role in ensuring that 500 Azerbai-jani and expatriate drilling personnel meet the challenge of successfully operating the drilling facilities on five new ‘cyber’ platform rigs which started operations be-tween 2005 and 2007. In 2011 alone, over 700 internal and external people were trained across our seven DART Services training centres around the globe.

International opportunities remain an incentive to some potential recruits. “Operating in more than 20 countries

The gap for skilled work-ers in the energy industry continues to dominate headlines, reports and sec-tor news. Pricewaterhouse-Coopers (PwC) recently

released a report calling for 120,000 new recruits to enter the Aberdeen market to counter an aging workforce.

The new energy skills academy will play a part in minimising the divide but won’t be able to fill the gap on its own accord. As oil and gas companies search for the 120,000 new candidates to ensure the longevity of their operations another statistic could come into play.

The UK government has outlined how it will reduce its defence spend-ing, including cutting Army personnel from 102,000 to 82,000 over the next five years. As the government tightens its budgeting belt, thousands of ex-servicemen and women will be looking to transition from the battlefield to the domestic workforce. It’s a talent reservoir that should not be overlooked. We certainly don’t.

The training forces personnel receive whilst in situ is second to none. We have found their work ethic, integrity and dedication make them the ideal candi-dates for any industry looking to bolster is ranks and ensure its future. Most importantly their skills are transferable. The ex-service personnel we have worked with fulfilled roles operating heavy artil-lery, maintaining the air force’s planes or operating complicated integrated

computer systems. They may not have the hands on experience on the rig or even onshore experience, but they are equipped with firm working foundations and an unmatched aptitude for progress.

Recruitment into the energy industry is more than just a numbers game. Filling the gap is just the first step in a two-part job. After we attract, educate and train new recruits we must also be able to retain their skills and services in the industry amidst emerging international markets. Companies often look for that elusive golden candidate, who has the idealistic five to 10 years’ accumulated experience in the industry and has an indispensable skills set.

But the companies here face a crowded market and a heavier international pres-ence, creating competition in the race to sign their signature. Newer, riper oilfields, boasting ex-patriot benefits are catering to those same experienced candidates. We must work to not only educate but retain candidates here in the UK to exploit remaining North Sea reserves.

The energy skills academy will have to do more than just educate. It must com-municate to a potential workforce that Aberdeen’s market is still very much buoy-ant and has a long and prosperous future stretching before it for decades to come. We need to educate and retain candidates, so they can apply their newly sought skills set to the industry here in the UK.

Technological innovation, ground-breaking oil recovery methodologies, health and safety standards and many

Standards set that exceed expectation

Salute skills of experienced candidates

We are passionate about perforning to the highest standards ... we must also be the best employer”

- Katie Powell, Group HR Manager,

KCA Deutag

We should recognise the potential in ex-servicemen and women, with transferable skills

- Kevin Riley, managing director,

Carlton Resource Solutions

means we can provide new experiences, perspectives and opportunities in exciting oil and gas regions. The energy industry is inherently global so while the scenery changes; it is relatively easy for employees to make an international move which can be a valuable step in their career.

“Ultimately, we want to make the recruitment process as efficient as possible to ensure we are hiring the best candi-dates and have the right people in the right place at the right time. In the last 12 months, we have secured contracts in Norway, Russia and South East Asia.

“As a result, we will add 500 people, all with their own unique cultures and experiences. It is vital we familiarise our-selves with local customs and cultures and understand the challenges they are facing. A dogged commitment to understand the life, motivations and ambitions of each employee and designing a bespoke training and development package around their capabilities, is the best way to build an enviable workplace culture.

“It is also crucial that we take the time and due care to induct these new people into the way we operate and that they absorb ‘The KCA Deutag Way’, which is the set of operational, safety and behavioural principals under which we work. Only by doing so will we all able to meet the expectations from our clients and the high standards that we set for our worldwide operations.”

other industry precedents were borne out of the North Sea. In order to continue that healthy progress and to address the need for talent, the industry should recognise the potential in candidates like ex-servicemen and women. They possess a robust set of transferrable skills. Their training, experience and work ethic can help drive the industry forward, allowing it to address and meet the challenges of today’s marketplace.

The SNP’s 2020 oil and gas industry strategy has impressive targets. But to meet these we need close collaboration between different sectors, employers and educational institutions. With this approach, I believe the North Sea’s respected history will pave the way for an exciting future and enhance its ability to remain at the forefront of the industry.

And we aim to contribute to this at Carlton Resource Solutions has more than 100 years of combined recruitment experience in several markets, including management, accountancy and finance, engineering, and HR. With an estab-lished market in Aberdeen and London, the company specialises in the UK oil and gas sector.

Each one of the company’s consultants possesses strong levels of expertise within their specific sectors, and continues to provide their clients with bespoke, qual-ity resource solutions.


Power of Scotland14

It is worth noting that it is 160 years since Scotland started producing “petro-leum”. In the 19th century, Scotland was a pioneer in the refining of oil. This was not for fuel but to provide lubricat-ing oil for the machines of the indus-

trial revolution and, importantly, safe fuel for oil lamps - paraffin. This Scottish Petroleum industry was largely developed by James (Par-affin) Young, a Glasgow born chemist. The oil was produced firstly from coal and them from oil shale in West Lothian. Shale is one of the rocks from which modern day “unconvention-al” gas and oil are now being produced.

Shale is clay that has been buried, “cooked” by the heat from the earth, squeezed at depth by the weight of the overlying rocks and transformed over time into rock. Shale has poor flow characteristics and is usually the sealing rock for conventional reservoirs. Clays deposited over time in the sea can become mixed with the remains of small creatures, for example, plankton, to produce a clay that has a high organic content. If this clay is buried and cooked under the right conditions, the clay becomes shale and the organic matter is transformed into oil and gas. Organic-rich shale is a source rock for many of the oil and gas reservoirs that we produce today.

The methods of the 19th century were rather different from those of today. The shale was mined and then transported by rail to the refinery where the shale was heated in large retorts to produce the oil as a condensable vapour. This “crude” oil was then refined into the desired products, as lubricants or paraffin. This extraction from shale was an expensive method of producing oil and could not com-pete with the cheap oil produced by oil wells drilled into “conventional reservoir” rocks through which the oil (or gas) could easily flow. These conventional reservoirs are quite different from shale and are usually sand-stone, naturally fractured chalk or limestone reservoirs.

There is much oil trapped in shales all over the world but for over a century shale was ignored as a direct source of gas and oil. This situation lasted until about the late 1980s when drilling techniques matured to a point where more productive horizontal well bores could be drilled with precision for several hundred or more metres through the shale.

The current interest in producing oil and gas from shale, particularly gas, was started in North America, largely by small independ-ent companies. The results have been quite startling: the USA has stopped importing gas, the use of local coal for power generation is reducing and US coal is now being diverted for export to China. The sale price of gas has collapsed to such a low level that it is now dif-ficult for many companies to make a profit and many wells are being taken out of production. Many of those companies that were concen-trating on shale gas are now changing direc-tion and beginning to explore for shale oil.

There is now high interest in shale gas in Europe, particularly Poland. However, there are several factors working against a US-style impact on the gas market in Europe.

While gas prices in Europe have reached levels the North American producers only

dream of, drilling costs are significantly higher and there is just not enough equipment avail-able in Europe to drill and complete enough wells for shale gas production to make a significant impact on the gas market. It will require significant capital investment to raise the onshore industry in Europe to a position where it can really tackle shale gas and oil economically.

There is then the controversy surround-ing the fracturing (“fracking”) of formations to assist in the production of gas. Fracturing of formations is not a new technology and has been used for decades to obtain produc-tion from formations with poor permeability (ability to let fluid or gas flow), particularly tight sandstones, chalks or limestones. The process involves pressuring the formation hydraulically to cause rock failure locally and create fractures that will provide a pathway for the gas or oil to flow to the well bore. The fracture is held open, ”propped”, by specially sized material that is pumped into the rock together with the fracturing fluid. Regrettably, many of the recent claims and statements made about fracturing have been inaccurate or ill informed. Some headline grabbing articles in the press have obviously been written by journalists with a poor understanding of the subject, or simply parroting the ill informed statements from someone equally ill informed, all with little relevance to the scientifically based technique in use since the late 1940s. There is no reason for properly planned, managed, and executed fracturing to endanger ground water or anything else.

The other unconventional source of gas and oil is coal. Aberdeen Drilling Management is carrying out technical studies into coal bed methane (CBM). CBM is methane adsorbed onto the coal. In coal mining, methane is the main constituent of the mixture of gasses known as “firedamp” and is a source of danger in many mines. It is the production of this gas that ADM is studying with a view to devel-oping CBM production from unmined coal measures.

As with production from shale, commercial CBM production is dependent on modern drilling methods which enable long horizontal well bores to be drilled along, and staying within, layers of coal as thin as 600mm.

Successful CBM production relies on being able to induce the methane gas to become free, desorb, from the coal and migrate through the coal to the well bore. This is all a relatively slow process so there has to be a very good understanding of the nature of the coal being developed to ensure the well bores are drilled in the optimal direction to maxim-ise gas production.

It is estimated that CBM can recover at best only 5% of the total energy in the coal, with a recovery of 2 – 3% being more typical. Even at these low recovery levels, CBM can be commercial in the UK provided gas prices remain close to current levels and do not drop as they have in North America. There is enough energy in the UK’s known coal re-serves to provide us with energy for 300 years at current levels of demand. It is therefore of long term interest to find ways of accessing the coal reserves, some of which are too deep for

easy mining due to high temperature.A desire to benefit from our coal reserves

leads to the third way of producing gas and liquids - underground coal gasification (UCG). In the 19th century gas for domestic use, lighting and cooking and heating, was produced from coal – “coal, or town, gas”. This involved men digging the coal out of the ground, the coal being transferred to a gas works by rail where it was put into large retorts, heated to release gas which was then piped to houses and businesses. The railways were the equivalent of the present day gas pipeline network that transports natural gas around the country. UCG basically cuts out the mining and rail transportation of town gas production by carrying out the production of gases from the coal in-situ. The gases from this process can be processed on surface to produce synthesised gas or liquids such as diesel. Note that the gas is not a “synthetic” gas as is often stated. The process of producing liquids is known as the Fischer-Tropsch process. This process uses catalysts to produce liquids from the coal gasses. UCG is more capital intensive and has higher operating costs than CBM, but will release greater value from the coal and can potentially provide feedstock for the petrochemical industry.

The production of all unconventional oil and gas requires a higher density of well bores than for conventional reservoirs. The challenge is to drill the wells in the mini-mum space and at a minimum cost. Modern directional drilling techniques can provide the many wells needed whilst minimising the surface space required – the “surface foot-print”. The cost of drilling and completing wells needs to be controlled and minimised, without compromising safety, by careful design and good planning. To unlock the huge potential of coal, Aberdeen Drilling Manage-ment has formed a dedicated Coal Group that will bring specialist knowledge and skills to bear on these development issues.

Our society entered the Hydrocarbon (or Petroleum) Age in the 20th Century. There may be arguments for reducing the use of fossil fuels for transportation and electricity genera-tion but hydrocarbons are well established at the very core of our lives: we may switch to electric cars but the plastics and polymers in these cars will be made from hydrocarbons; most of our lubricants are made from hydro-carbons; the plastics, polymers and resins we rely upon in our daily lives all come from hydrocarbons. Unless we wish to regress tech-nically, we shall continue to rely upon oil and gas as feedstocks for the foreseeable future.

The Oil Industry continues to evolve. Our hydrocarbons are a finite resource but we continue to find ways to add to our reserves by producing oil and gas from ever deeper waters and increasingly difficult reservoirs. The world is not about to run out of hydrocarbons but we now recognise the environmental challenges as well as the engineering and drilling ones. Aberdeen Drilling Management is proud to be part of this evolution.

Robert MacAndrew, Clive Ninnes.Tel: 01224 576922, mobile: 07714 220203E-mail: [email protected]

commercial report: aBerDeeN DrilliNG maNaGemeNt ltD

robert macandrew – managing Director

clive W Ninnes – Non executive Director

Back to the Future - an engineered approach to unlocking the UK’s unconventional Gas and oil potentialI

t is worth noting that it is 160 years since Scotland started producing “petro-leum”. In the 19th century, Scotland was a pioneer in the refining of oil. This was not for fuel but to provide lubricat-ing oil for the machines of the indus-























Back to the Future - an engineered approach to unlocking the UK’s unconventional Gas and oil potential


Unconventional Gas is supercharging the USA’s drive toward energy self-sufficiency. So abundant is shale gas — one ‘uncon-vential’ fuel — and so rapid its recent exploitation, that

it has markedly depressed gas prices in America and reduced dependence on imported fossil fuels.

Unconventional gas includes shale gas, coalbed methane (CBM) tight gas, and gas hydrates. The UK also has significant reserves of shale gas and CBM — some of it in Scotland — which could help to address a potential threat to energy security looming later in the decade.

The UK government is reviewing an existing moratorium on hydraulic fracturing (fracking) for shale gas and will likely free up the industry to proceed. It is establishing an Office for Unconventional Gas and is to consult on tax incentives.

Fracking involves pumping water, sand, and very low concentrations of chemicals into underground shale to widen fissures and thus release gas. The European Com-mission will deliver a framework in 2013 to manage risks, address regulatory shortcom-ings, and provide maximum clarity and pre-dictability to market operators and citizens across the EU.

Far from being dismayed, proponents of fracking and CBM see the potential for the UK and Europe to emerge as territories committed to a portfolio of energy sources and technologies that include unconven-tionals and are well regulated in a way that catalyses smart thinking.

“If a (regulatory) framework acknowledges that any particular identified risk can be managed safely and the expectation of the standard that it will be managed, then that drives innovation around equipment and pro-cesses,” said Tom Pickering, founding director of Composite Energy, an active European unconventional resource acreage developer.

Composite Energy was sold in 2011 to listed Australian CBM and shale gas devel-oper Dart Energy in a deal valuing the for-mer at £40-plus million and which saw it rebranded as Dart Energy (Europe) based in Stirling, Scotland. It is assessing CBM opportunities throughout the coal seams of the Scottish ‘Midlands Basin’ including sites at Airth near Falkirk and in Fife.

“We’re already seeing a lot on interesting technology starting to emerge,” said Picker-ing, who chaired last month’s Unconven-tional Gas 2012 conference and exhibition in Aberdeen, at which some of that innova-tion was on display and being discussed by international experts.

The event was organised by an industry led committee with support from Aber-deen City Council, ITF, the global technol-ogy facilitator, and the Aberdeen section

Unconventional gas has revolutionised the US industry and we are about to discover its mighty potential, writes Rob Stokes

Alternative energy

of the Society of Petroleum Engineers.Delegates heard from operators and

service companies including Dart Energy, Cuadrilla, Halliburton, Chevron and Weatherford. Others providing perspectives included Coffey Environments, Urenco, AMEC, Simmons & Co International and Buccleuch Estates.

Scottish case studies of note on the technology side include Aberdeen head-quartered HRH Geology, a world leader in operational geology, which specialises in developing advanced geological tools and providing highly skilled people.

HRH technologies that can be tailored for unconventional gas clients include: its Gravitas Software System that connects geologists to the ‘digital oilfield’, integrating well data from sensors and linking the well-site to work-flows; and ‘Spectra’ advanced gas-analysis technology that is portable.

The company did business in 52 coun-tries in 2010 and is continually seeking new growth markets to service from its Aberdeen HQ covering the UK and Europe and from regional offices in Abu Dhabi and Jakarta, Indonesia as well as through a global net-work of agents.

Oil and gas drilling waste management specialist TWMA, which began life in Shet-land, has an HQ in Aberdeen but similarly serves a global market onshore and offshore and is adapting its know-how to the needs of unconventionals.

It is expanding in the USA, where it claims to save onshore drillers $30,000 to $50,000 per well. TMWA says it recently saved a shale gas operator in Texas almost $470,000 by processing drilling-fluid con-taminated drill cuttings on site rather than sending it long distances to landfill sites as had been the previous practice. The savings included the value of the oily drilling fluid that was recovered for further use through TMWA’s unique process.

While regulation can be a driver of inno-vation, a paucity of modern onshore drilling rigs and a general shortage of skills in the energy industry are barriers to unconven-tionals developing in the UK and Europe for now, according to Robert MacAndrew, managing director of Aberdeen Drilling Management (ADM).

ADM provides the oil and gas industry with services including engineering, drilling, testing, completion, maintenance and man-agement of wells and related activities, field development and redevelopment.

“Because the UK and Europe lack scale currently, the cost base for drilling and preparing wells tends to be high at the moment,” added MacAndrew who writes at greater length elsewhere in this issue.

In 2009, ADM recruited internationally respected mining and well engineer Martin Cox to its management team to take respon-sibility for Technical Business Development. His remit includes promoting develop-

ment of clean energy from either CBM or underground coal gasification (UCG) and the potential for capturing carbon dioxide (CO2) and storing it in old oil and gas res-ervoirs and un-mineable coal seams, all of which will require safe, cost efficient well construction.

“The potential across the central belt of Scotland in CBM and CO2 sequestration is very attractive,” said Tom Pickering. “At the moment there isn’t a market for carbon cap-ture, but if some (financial) reward could be offered to lock CO2 in structures near major power stations, then we should be thinking about these things. We’re starting to map the opportunity to do other things as we explore for the reserves.”

Infrastructure issues are high on the industry’s agenda too. How will it get gas or locally generated power into the gas transport pipelines or electricity grid? If it has to bear all the cost, it will be looking for unconventional gas to be given incentives. It is also mulling over how it might collaborate with renewable energy producers on joint infrastructure. Adding in an income stream from CO2 capture and storage would help to balance the books.

For now though, the dice are loaded against UK shale gas. As a report from the UK Department of Energy and Climate Change explained: “Land owners do not own mineral rights, so there is less incentive to support development, and local authori-ties must grant planning consent. The US has relatively permissive environmental

regulations, low population densities, tax incentives, existing infrastructure, well developed supply chains and access to technology. Cumulatively, these factors mean that it is far from certain that the conditions that underpin shale gas production in North America will be replicable in

the UK.”

Tom Pickering of Composite Energy, who chaired last month’s industry conference in Aberdeen

The future rocks“Unconventional gas offers potential as another source of natural gas and in Scotland we need a diverse energy portfolio to aid resilience and maintain security of our supply,” Scotland’s Energy Minister Fergus Ewing told the Unconventional Gas 2012 conference in Aberdeen last month. New guidance has been produced by the Scottish Envi-ronmental Protection Agency to cover its regulatory roles for coal bed methane and shale gas.

Building trust and confidence through independent verification will be crucial to gaining public

acceptance of unconventional gas, said Robert O’Keeffe, associ-ate director of Det Norske Veritas (DNV), the risk manager which has developed a Recommended Practice addressing shale gas to complement existing regulation. O’Keeffe suggested the DNV model could form “the basis for a globally recognised standard for safe and sustainable shale gas extraction”.

Cracking new challenges

Speciment of rock from which shale

gas is extracted

It is worth noting that it is 160 years since Scotland started producing “petro-leum”. In the 19th century, Scotland was a pioneer in the refining of oil. This was not for fuel but to provide lubricat-ing oil for the machines of the indus-























Back to the Future - an engineered approach to unlocking the UK’s unconventional Gas and oil potential


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The Times Business Insight (Scottish Edition) Power of Scotland - December 11th 2012

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Transcript of The Times Business Insight (Scottish Edition) Power of Scotland - December 11th 2012