Investment in North Sea Oil is at a 30 year high – and the talent is following the money
Talking about ‘good news’ and the economy feels like some sort of naïve game we used to play five years ago. We don’t play it anymore, it’s lost all relevance. We are so battered down by tales of industry woes and triple dips that we barely dare to utter the two little words. Someone has though, and he’s got the figures to back him up.
“Here is some really good news for the UK,” said Malcolm Webb, chief executive of Oil and Gas UK, a leading offshore energy association.
“After two disappointing years brought about by tax uncertainty and consequent low investment, the UK continental shelf is now benefitting from record investment in new developments and in existing assets and infrastructure, the strongest for more than three decades.”
Investment at a 30 year high certainly is good news. According to the report by Oil and Gas UK, £11.4bn was invested in offshore energy last year and it’s expected to rise to £13bn this year.
So what’s happening in the energy industry that’s causing this stream of investment – at a time when investors are showing caution in so many other areas? It’s no accident. The introduction of targeted tax allowances by the coalition has championed the development of a range of difficult projects. As has the Government’s commitment to provide decommissioning tax relief. The UK is now something of an investment destination.
Also, according to the Scottish Government there’s some 24 billion barrels of oil still waiting to be sucked from the depths of the North Sea – worth an estimated £1.5 trillion.
“The moves from Government have been really well received and people are more confident in committing to projects in the North Sea,” says Ed Allnutt, director at Hays Oil & Gas, the recruiting experts.
“Organisations are happier to be based here because of corporation tax changes. There is such a strong investment community in London and a huge amount of opportunity in Africa at the moment – and London is the major hub in that time zone. There are international funds coming in and investing in local oil companies and projects to secure their energy futures, it’s all pretty exciting.”
It’s not just the big energy companies like BP and Shell getting the kickback from this flow of capital. The FT’s Advisor columnist, Axa’s Nigel Thomas, recently wrote about the opportunities in backing oil companies, including ancillary companies, such as oil services company Hunting.
Autodesk is another such company which is benefiting from the boost to the oil and gas industry. The multinational software corporation works across the architecture, manufacturing and media industries but also uses its 3D design software to aid the energy industry.
“We are certainly seeing an increase in activity, there is great opportunity for us to help the industry during this time of record levels of investment,” says Autodesk’s senior industry programme manager Dominic Thasarathar.
“There has been an increase in smaller companies being able to enter the market, especially now they can write off the cost of decommissioning. We have experienced positive growth in the energy sector as we see how we can help it to get the maximum efficiency in fairly complex projects. Our technology can help these companies to compete.”
A quick glance at the roster of smaller energy companies listed on the AIM market gives an idea of just how many smaller players are active in the industry. They are proving tempting choices for investors – backed up by recent finding from Ernst & Young.
“On average over the last twelve years, non-integrated or independent/pure-play companies have generally delivered better returns than their larger, integrated competitors and they have generally shown higher valuation metrics,” says its report, ‘The Oil Downstream: vertically challenged’.
Not only are these smaller players producing improved returns, they are also proving to be a big pull for talent at a time when the industry is suffering a well-documented skills shortage.
“The attraction of working for a company where you aren’t doing the same thing everyday is quite strong at the moment, and at smaller, more agile companies, you get to do a bit of everything,” says Hays’ Allnutt.
“We are getting a lot of people looking for roles playing a bigger part in a smaller team, which reflects the current entrepreneurial vibe in London.”
The efforts made by the energy industry to tackle the skills shortages look set to pay off in the future. The industry has made huge pushes to encourage talent at all levels to get involved in the sector, expected to keep performing well. The integration of new technology into the energy industry is transforming the way it works, modernising it for the next wave of graduates.
“We too have been working to help the industry address the real challenge of finding the skills to satisfy demand,” says Thasarathar.
“We are improving worker productivity with more automation and we are designing oil rigs for the next generation of digital kids. They have grown up knowing a digital environment and will have certain expectation around functionality so a lot of the software we produce is aligned with that. ”
With the record levels of investment sweeping across the industry and the emergence of multiple smaller players in the market, the future looks bright. Even the skills shortage that was once its biggest threat to survival looks to be in hand and under control.
“There is undoubtedly an ageing workforce in the industry which has a low replenishment rate at the moment, but things are improving,” says Allnutt.
“The demand is so strong, that the salaries are [being]whipped up. Combined with the downturn, the industry is attracting the young talent it needs to survive. In ten years time people won’t still be talking about these skills shortages.”
Good news indeed.