Drilling down into challenges facing the UK oil and gas industry


It’s an industry fraught with complex challenges. But there is hope on the horizon

James Cameron’s 1989 science fiction hit, The Abyss, heralds a dark and unsettling two hours that would put anyone off diving to the sea bed.

The film takes place in the unfamiliar world in the depths of the Caribbean Sea. You may remember it as a story of extra-terrestrial life but also one that plays out the perils of working in the deep ocean. The action takes place on a fictional underwater oil platform, the Deep Core.

The aliens may be fictional but the hazards of extracting oil from the sea bed are not.

Drilling from the bottom of the ocean is just one of the hostile environments in which the oil industry operates.

From the watery depths of the North Sea, to the dusty Middle Eastern deserts, to the frigid regions of Siberia, oil and gas exploration is played out in some of the most difficult conditions that our earth holds.

As oil reserves around the world diminish, oil is proving harder to extract – the low hanging fruit has long been removed.  This is forcing oil and gas companies to push boundaries in pursuit of those much needed hydrocarbons.

While the march of the renewable energy industry moves at a decent pace, the reality is plain.

We need oil. We need gas.

And we’ll continue to need both for decades to come despite the governments’ best efforts to decrease our dependence.

“The increased attention given to renewable energy has brought to the fore the need for the general public and politicians to recognise the economic, energy and technology value of the oil and gas industry,” says Mike Tholen, Oil and Gas UK’s economics director.

“The current 75 per cent dependency on oil and gas for our energy will only fall to 70 per cent this decade.”

The challenges facing the UK oil and gas industry don’t end with extraction

One of the major concerns is the transfer of regulatory control of offshore safety away from the North Sea regulators to the EU.

“Brussels has not the experience or competence of the North Sea regulators,” says Tholen. “We believe this would result in confusing administrative and regulatory upheaval and would be a huge backwards step for the safety of our offshore workforce.

“There is now a chorus of well-informed voices including North West European Governments and trade unions, calling for an EU Directive instead of a Regulation.

“This would allow member states which do not meet the high standards of the UK and other North Sea countries to bring their standards up to the same level – avoiding the potentially disastrous effect on safety that the regulation would inevitably bring.”

The transfer of regulatory power to the EU is an issue facing many industries in the UK. Cameron’s veto back in December was an audible attempt to protect the City of London from potentially damaging regulations.

A tussle over regulation isn’t the only issue the oil and gas industry shares with other UK sectors. Unfortunately, the energy sector is also victim of a huge skills shortage which some would argue overshadows the other challenges.

“One of the biggest problems for UK oil and gas is the lack of skilled professionals available to replace those reaching the end of their careers,” says Ed Allnutt, director, Hays Oil & Gas, the leading recruiting expert.

“A large proportion of engineers working in the industry are nearing retirement and there is limited resource available to replace them. There has been an increase in graduate level Engineers ready to enter the industry but the middle piece (5-15 years’ experience) is missing.”

According to the World Petroleum Council, 40–60 per cent of geoscientists and petroleum engineers will retire within the next five years. With an industry whose needs and requirements are becoming more complex every day, this skills gap is critical.

The industry currently supports employment of 440,000 people, this is expected to grow over the coming years as investment grows but will we have the manpower?

How has an industry worth hundreds of billions of pounds worldwide got into this mess? Allnutt has an answer – for the UK at least.

“Engineering went out of vogue in the eighties and nineties with the perception that greater opportunities were available to graduate Engineers in other sectors. For example we saw a significant push towards finance.”

One report has suggested that this generation, those supposed to be ready to take the place of those retiring, has grown up looking at images from oil and gas disasters and been put off going into the industry.

“It has had an effect,” says Allnutt, “Comparable industries like the renewable energy have in the main part had positive associations, whereas we only hear from the oil and gas industry either when there’s been an accident, or when huge profits are made – which come across as negative.”

Tholen is confident the industry is learning from the mistakes of others to ensure these disasters aren’t repeated: “Health and safety and environmental regulation is robust and fit for purpose.

“The regime drives a culture of continuous improvement. Wherever there is an incident that significantly harms people or the marine environment, the industry in the UK must look at its own practices and consider how they can be improved.”

Changes may be being made from the inside but will it be enough to change the minds of environmentally conscious engineers?

Is it simply a matter of getting better publicity around the industry to pull people in?

“I think we need to push the profile of engineers in general,” says Allnutt. “The oil and gas industry has an opportunity to say “look what this industry can do for you.” It is a highly paid sector with fantastic opportunities.”

According to a recent survey by Hays, UK oil and gas professionals are enjoying competitive wages. For example, contractor day rates for those working in the North Sea are amongst the most competitive worldwide.

The outlook is good

There’s no denying the challenges that face the industry, but according to recent research, confidence in the industry is up. This may be partly due to the encouragement shown by government in the March 2012 Budget.

The news from the Chancellor came following a disastrous 2011 which saw production in the UK suffer a record fall, exploration drilling halved, and commercial activity “trailing off to a mere trickle”.

“The industry clearly feels buoyed by the Budget announcement,” confirms Tholen. “Business confidence, as measured by our quarterly Index at the end of March, had risen from 57 to 64 out of 100 points, the highest since its launch at the beginning of 2009.”

“We estimate that this should give rise over time to up to £40bn of extra investment and result in the recovery of an additional 1.7 billion barrels of oil and gas. The Exchequer could receive an extra billion pounds of tax revenue in the first five years alone.”

That’s good news for the Exchequer and good news for the oil and gas industry. Hopefully this kind of update will encourage future generations of engineers to take the path of oil and gas. There may be a finite supply of hydrocarbons but it is estimated that there are 24 billion barrels still left to recover in the North Sea.

And despite what James Cameron might have us think, no alien life forms standing in the way of their retrieval.