Heady days for North Sea oil and gas industry

North East companies learnt of the billions of pounds worth of contracts on offer from two of the North Sea's major oil and gas operators when they both visited the region last week, as Peter McCusker reports

North Sea
North Sea

Enquest has plans to spend more than £1bn on its North Sea activity this year, and by 2016 it expects to be producing oil from its new £4bn Kraken development.

Apache North Sea recently spent £400m with the OGN Group in Newcastle on a new jacket and topside for an extension to the Forties field in the North Sea, and plans to spend a further £1bn this year.

These are heady days for the North Sea oil and gas industry with investment last year reaching a record £14.4bn and that is set to continue in 2014 with a further £13bn of anticipated expenditure.

One of the consequences of this record levels of activity are rising costs, due to a shortage of staff and suppliers, in the UK’s oil capital of Aberdeen.

This is forcing many of the oil companies to shift their focus from the north of Scotland to the south with the North East the destination of choice for many.

Last Friday, for the first time in many years industry body Oil & Gas UK organised a major event for the North East supply chain featuring representatives from Apache and Enquest.

Held in the Centre of Life in Newcastle the PILOT Share Fair attracted almost 100 delegates from supply chain companies eager to hear of the opportunities in the sector.

One of those present was Rob Johnson, director and principal engineer at Axiom Engineering Associates, of Stockton.

Axiom employs over 30 staff and expects to generate annual revenues of over £2m for the first time in its 11-year history. Its primary focus is asset integrity, inspection and preventative maintenance.

Having evolved out of ICI it had been largely focused on the process and chemical industries but is now looking to diversify into oil and gas.

Johnson said: “We are hearing that the companies in Aberdeen are facing resource shortages and it seems sensible that a company such as ourselves should try and fill those gaps.

“The work we do in integrity services seem to fit in with what is required in the oil and gas sector.”

Malcolm Webb, chief executive of Oil & Gas UK, said: “We want to show that we’re not Aberdeen-centric and help spread the word on the opportunities that are now available for the North East supply chain.

“Events like this also help raise awareness of the crucial role the industry plays in the UK economy. In 2012/13, the industry paid £6.5bn in tax on production. The wider supply chain is estimated to have contributed another £5bn in corporate and payroll taxes and the industry supports some 450,000 jobs across the UK.

“There is a huge amount of work in the industry and events like this help operators and Tier One contractors to get to know the supply chain in the North East.”

Morpeth-born Duncan Fail, contracts manager at Apache North Sea, sketched out its history then outlined the projects it is currently involved in.

He told Journal Energy that it currently works with up to 50 suppliers from the North East.

“The North East is a significant part of the supply chain. We showed a massive amount of confidence in the region with the awarding of the Forties platform extension contract to the OGN Group.

“I have been impressed by the great response from the companies here today, some of whom we know and others we don’t.

“Our message to the North East supply chain is that we are not a closed shop. We have significant investment plans and would like to see the North East business help us with these,” he said.

In a phone call with Journal Energy prior to the event Ali Tapur, supply chain manager at EnQuest, explained the reasoning behind the drift from Aberdeen.

“The market is growing at a rapid rate on the UKCS (United Kingdom Continental Shelf) and overseas and there are significant capacity pressures in Aberdeen. Everyone is very busy. At the minute it’s just very difficult getting people, services and equipment.

“As a result of these capacity pressures in Aberdeen we are seeing a sharp rise in costs in the North Sea.

“We are trying to look outside Aberdeen and the North East has a lot of industrial skills, experts and experience.

“Working with more companies and people helps us to reduce our costs and these better prices give us greater flexibility to invest more into our assets and developments.

“EnQuest is also a company that wants to be seen investing in the North East economy. We know that it’s important that other areas of the UK can benefit from the high activity levels in the North Sea. We see it as part of our corporate and social responsibility.

“Safety is the most important part of the offshore work environment and we find the North East workforce and craftsmanship is of excellent quality.”

One recent trend resulting from the overheating of the Aberdeen oil and gas industry is a shift of Scottish businesses to premises in the North East.

As we reported on last week’s energy pages there have been a number of arrivals from the north of the border, including Bibby Offshore.

Alan Edwards, operations director for Bibby Offshore in Aberdeen, said workers from the North East who had previously been based in Aberdeen had returned to the region to work in its Tyneside office.

Shawn Bulgen, project director at the Tyneside office of Bibby Offshore, said: “We are here today to meet people and to map out the supply chain capacity in the North East.

“One area of expertise we are looking at is fabrication. There are only 12 qualified welders on the whole of the Shetland Isles.

“It doesn’t matter to us if the supplier is large or small. We are after a responsive and cost-effective service.”

Bibby moved to Gateshead Quays late last year and currently employs over 20 people from a standing start.

Bulgen continued: “It has been fantastic since we have been down here. There is a real sense of community in the North East which compares favourably to Aberdeen.

“The North East seems to be community-based and people want to help each other.

“It has been tough down here in the past but that is changing.

“The people are fantastic; there is a real can-do attitude and a strong heritage of engineering, which has provided a good skills base.”

There are said to be some 65,000 North East people employed in the UK oil and gas industry and one facet of this move to the south is the opportunity for more of these workers to work from their home region instead of Aberdeen or overseas.

Tapur of EnQuest continued: “Many of the offshore staff in the North Sea come from England.

“Workers from the North East seem to have an advantage with experience of working in the industrial and process sector.

“The North East has a long history of fabrication, but we are finding with companies in the region such as Fabricom and others there is a real strength in many aspects of the industry such as design and projects skills.

“The North East has a strong industrial heritage, with lots of heavy industry experience and a large pool of resources.

“We want to work with the North East and business across the UK to establish long-term, strategic relationships and partnerships of mutual benefit. There are some great opportunities in the industry for North East companies.”

Oil & Gas UK’s business development director, Stephen Marcos Jones, said: “The market in Aberdeen is overheating, with the high existing costs currently getting even higher.

“We currently have 23 members in the North East and our aim is to get the message out to all of the supply chain of the potential opportunities that currently exist in the industry.

“A number of companies from other sectors such as aerospace and the process industry are looking at the oil and gas sector and wondering if it’s possible to diversify in the market.”

The supply chain pockets in the North East can help drive out inefficiencies in the supply chain and help increase the levels of standardisation in the industry, he said.

He added: “Our aim in coming to Newcastle is to spread the word that it is not just Aberdeen that can benefit from the industry.

“Aberdeen has high costs and this is creating opportunities for North East companies to find new markets, and for Aberdeen companies to find new suppliers.”

Enquest

EnQuest was formed in 2010 and is now the largest UK independent producer in the North Sea.

It has 37 UK production licences including the Thistle, Deveron, Heather, Broom, West Don, Don Southwest, Conrie, Kittiwake, Mallard, Gadwall, Goosander and Grouse producing fields.

In the first four years EnQuest generated $2.1bn of cash and reinvested $2.3bn in the UK North Sea.

Its £4bn Kraken project, the largest oil field investment announced in the UK 2013, is set to come on-stream by 2017.

Kraken is expected to produce of 140 million barrels of oil. Directly and via the supply chain, it will support 20,000 jobs during its construction and approximately 1,000 jobs a year for its 25 year life.

EnQuest has plans for further significant investment in the coming years and later this year hopes to restart production at the UKCS’s first operational field.

The Alma field, previously known as the Argyll field, was the first oilfield to be developed in the North Sea but was abandoned because of the high water content of output. New technology has made retrieval of oil from the dormant field more economic. It is estimated to contain as many as 29 million barrels of oil.

Many other costly developments scheduled to come on-stream in the North Sea over the coming years are not new finds.

Instead, a combination of high oil prices, better technology and some generous tax breaks have made it economic to lift deposits that were previously known about, but which were deliberately left in the ground because, at the time, the cost of extraction was too high.

EnQuest says the “UKCS represents a significant hydrocarbon basin in a low risk region, which continues to benefit from an extensive installed infrastructure base and skilled labour”.

Oil & Gas UK roadshows

For many years Oil & Gas UK has limited most its events to Aberdeen but in recent months has spread its wing further afield.

Oil & Gas UK’s business development director, Stephen Marcos Jones, said: “As the national trade association for the oil and gas sector we believe that regional PILOT Share Fairs provide an effective way to increase connectivity between the key energy hubs across the UK. This event follows successful events which took place in Newcastle, Norwich and London earlier this year when we shared the findings of the Oil & Gas UK 2014 Activity Survey.

“It was clear then that attendees valued the opportunity to gain insights into the forward activity plans of operators and major contractors and our objective is to continue improving the quality and quantity of information available to suppliers.

“We were, therefore, delighted to see double the turnout at the regional PILOT Share Fair last week. It was also very interesting to see the extensive range of companies attending including specialist manufacturers, safety service providers, fabricators and marine science experts. Oil & Gas UK’s 2014 Activity Survey forecasts around £13bn of capital investment this year so there is real potential for national and local companies to benefit from the business opportunities ahead.

“With the market in Aberdeen experiencing high demand for oil field services, there is also  significant scope for companies in the North East to take advantage of the wide range of work available as the sector progresses with its production and exploration plans.”

Journalists

David Whetstone
Culture Editor
Graeme Whitfield
Business Editor
Mark Douglas
Newcastle United Editor
Stuart Rayner
Sports Writer