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OIL AND GAS
38 / CA MAGAZINE / ICAS.COM / MAY 2016
INCONVERSATION
HE oil and gas industry
is used to the cycle of
boom and...
MAY 2016 / CA MAGAZINE / ICAS.COM / 39
is becoming a big issue for the
industry now.”
The panel agreed that this is a
diff...
40 / CA MAGAZINE / ICAS.COM / MAY 2016
OIL AND GAS
Growth Fund’s Aberdeen office, said
his organisation had invested in oi...
MAY 2016 / CA MAGAZINE / ICAS.COM / 41
with RSM, said: “The danger is
that everyone waits for a bargain. If
you wait until...
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How can the UK Oil and Gas industry help itself?

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RSM's Andrew Forsyth, Tom Faichnie and Kevin Lamb join a panel of experts to discuss the plight of the UK oil and gas industry and what measures the sector can take to help itself.

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How can the UK Oil and Gas industry help itself?

  1. 1. OIL AND GAS 38 / CA MAGAZINE / ICAS.COM / MAY 2016 INCONVERSATION HE oil and gas industry is used to the cycle of boom and bust, driven by global commodity price movements, but the current downturn is biting deeper and longer than most. How is this affecting the industry, in the UK and beyond? To answer this question The CA magazine, with leading professional advisers RSM, brought together a panel of industry experts in Aberdeen to consider where we are and the likely prospects for oil and gas. Chairing the discussion was Andrew Forsyth, partner in charge at RSM’s Aberdeen office. He asked: “How does the UK’s oil and gas sector stand right now?” Louise Wood, managing director of manpower services business Prodrill, said: “Most businesses are struggling and SME businesses have been particularly hard hit. Many supply chain businesses are already working on open book contracts or cost plus contracts, so … are finding it difficult to make further, innovative savings.” Tony Dinozzi, head of M&A with international oil and gas services business Wood Group, said the company’s business had been affected worldwide. He said: “We took out $148m in costs last year and we will take out more this year. It is not going to get easier any time soon.” That said, he added that Wood Group had diversified its offering and was continuing to make acquisitions. But are the UK industry’s challenges all due to global factors? Charlie Parker, finance director with the John Lawrie Group, said: “The cost base in the North Sea is far too high. If we don’t correct that, there isn’t going to be a future for the industry.” Bob Ruddiman, head of global energy with international law firm Pinsent Masons, agreed. He said: “The industry believed its own rhetoric. Capex was up to around £13bn annually and that scale sounded great, but nobody was asking ‘what do you get for £13bn these days?’” He noted that people in the industry had not looked carefully enough at how other industries had managed to drive down costs. Louise Wood commented: “Everything is gold-plated in the oil and gas sector and we need to find a way to accept silver and bronze.” Jenny Junnier, group financial controller with Centurion Group and chair of the Aberdeen cross industry support network (AXIS), agreed that cost reduction has become a priority. She said: “So-called ‘lean process’ A panel of experts discuss the plight of the UK oil and gas industry and what measures the sector can take to help itself T IN ASSOCIATION WITH
  2. 2. MAY 2016 / CA MAGAZINE / ICAS.COM / 39 is becoming a big issue for the industry now.” The panel agreed that this is a different kind of recession, longer and deeper, and with new factors affecting the global supply of oil, particularly the shale gas sector in the US and the Saudis’ decision not to cut back on their own production. Ryan Strachan, CFO with services business Spex Group, noted also: “The implications for the North Sea are different now compared with 30 years ago. It’s now a declining, mature basin, and it is caught in a squeeze over which we have no control.” As Charlie Parker pointed out, however, the UK oil and gas industry remains a centre of excellence and investment in technology could help to reduce its costs, and make it more competitive. Mike Sibson, who leads growth finance organisation the Business “The implications for the North Sea are different now. It’s now a declining, mature basin, and it is caught in a squeeze over which we have no control” Ryan Strachan IN ASSOCIATION WITH ANDREWFORSYTHCA RSM (Chair) JOHNBREBNER Clydesdale Bank TONYDINOZZICA Wood Group TOMFAICHNIECA RSM JENNYJUNNIERCA Centurion Group WENDYKEENAN DNB Bank ASA KEVINLAMBCA RSM CHRISLLOYD MSIS CHARLIEPARKERCA John Lawrie Group BOBRUDDIMAN Pinsent Masons MIKESIBSON Business Growth Fund RYANSTRACHANCA Spex Group DAVEWALKER OilMac LOUISEWOOD Prodrill Energy Solutions THE PANEL
  3. 3. 40 / CA MAGAZINE / ICAS.COM / MAY 2016 OIL AND GAS Growth Fund’s Aberdeen office, said his organisation had invested in oil and gas technology businesses, in Scotland and the south of England. He said that it was proving easier to get a hearing for new technology that offered the prospect of reducing costs: “Now is quite a good time to be investing in technology businesses.” Dave Walker, finance director with OilMac, said the pressure on operators to cut costs could create openings for smaller companies such as his own: “One of the businesses we’re involved with, who normally put business through much bigger contractors, talked to us, because we were offering much better value. Our proposition delivers value that is not currently offered from alternative solutions, the current cost/ cash focus in the industry has opened conversations with businesses that historically did not deal with OilMac.” Could internationalisation be the answer? Andrew Forsyth said: “Of our clients, the ones who are doing well are those who are able to take up overseas opportunities.” Wendy Keenan, head of the Aberdeen office of DNB Bank ASA – Norway’s largest financial services group, agreed: “You have to be able to diversify… without losing your corporate identity.” But Tony Dinozzi said: “Internationalisation in itself is not going to solve the problem, because it’s a global problem, with the exception, perhaps, of the Middle East.” Instead, he said, diversification into other industries provided the best hedge. Andrew Forsyth said the prospects were not all bleak for the UK industry: “We’ve got a scarce resource which is still in plentiful supply, albeit the price is low right now; and we’ve got a huge potential for decommissioning.” There is still a question over the timing of decommissioning, however, and whether the UK has the required capability. Charlie Parker, whose business has been involved in decommissioning for a number of years, said: “We need some clarity on what’s going to happen. The government needs to spell out what’s going to have to come out of the North Sea and what’s going to stay.” Bob Ruddiman commented: “Successive governments have kicked this down the road, as the operators have done.” Ruddiman added that the industry “This is a time for entrepreneurs… this is not a time for guys who just want to do things the same way they’ve always been done before” Tony Dinozzi IN ASSOCIATION WITH should not expect the regulator, the Oil and Gas Authority, to solve the problem by itself. The panel also discussed whether the pressures on the sector are leading to an increase in M&A transactions. Tom Faichnie, corporate finance partner with RSM in Aberdeen, said: “We’re as busy as we’ve ever been on deals, buy-side and sell-side. People that were thinking about selling, two or three years ago, have decided to press the button now. These aren’t distressed companies, they are all solid trading companies.” It was noted that, overall, banks have been very supportive of oil and gas businesses in the past 18 months but cash-flow pressures over the rest of this year could lead to restructuring deals or the sale of distressed assets. Kevin Lamb, restructuring director Clockwise, from top left: Louise Wood, Rob Ruddiman and John Brebner; Chris Lloyd, Andrew Forsyth, Dave Walker, Wendy Keenan and Mike Sibson; Kevin Lamb, Robert Outram and Louise Wood; Andrew Forsyth and Wendy Keenan
  4. 4. MAY 2016 / CA MAGAZINE / ICAS.COM / 41 with RSM, said: “The danger is that everyone waits for a bargain. If you wait until the point of insolvency, the job of turning the business around gets a lot harder. There are a lot of businesses that are not seeking advice early enough.” John Brebner, regional head of specialist and acquisition finance for Clydesdale Bank in Aberdeen, said: “There is bound to be some consolidation, and there will be winners out of that. There are some businesses that are doing really well, but it’s a struggle for quite a few.” Wendy Keenan noted that banks are currently taking different strategies to managing their clients in the energy sector, from relationships being retained and dealt with locally to be handled from a more central restructuring team. IN ASSOCIATION WITH John Lawrie’s Charlie Parker (left) and Wood Group’s Tony Dinozzi The panel also discussed the prospects for recovery in the oil price. The panel’s straw poll of predictions suggested the price this time next year could be anything between $50 and $100, with the consensus at just above $60. Chris Lloyd chief executive of environmental services business MSIS, operating in Scotland, the Middle East and Nigeria, commented: “The only thing we know from history is that the oil price goes down and then it comes back up again, and it will probably come back up when you least expect it.” The panel agreed these are testing times. As Tony Dinozzi put it: “This is a time for entrepreneurs… this is not a time for guys who just want to do things the same way they’ve always been done before.”

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