In the new and uncertain political landscape that is post-Brexit Britain, eye-captivating headlines are never far away. In recent weeks, the nation’s broadsheets have been filled with a scintillating array of Westminster gossip, ranging from deep rifts in the Labour Party to Brexit triumphalism among grassroots Conservatives. The new Government’s policy on the oil and gas sector, however, has been noticeably absent from the front page. This begs the question: what does Westminster really think about oil and gas? Here, we take a look at what’s going on behind the scenes.
Ongoing political sentiment: While the new Government has only been formed for a few short months, the early signs are encouraging for the oil and gas industry. In August, Business, Energy and Industrial Strategy Secretary Greg Clark pledged to put oil and gas at the “heart” of the UK’s industrial strategy. Energy Minister Baroness Neville-Rolfe echoed this sentiment recently, when she stated that the Government’s commitment to the North Sea oil and gas industry was not in doubt. These statements suggest that the new Government recognizes the importance of the oil and gas industry as a source of affordable energy security and supply chain opportunities. Communities Secretary Sajid Javid’s recent decision to approve a Lancashire fracking scheme is a further indication that the industry can hope for a fruitful partnership with Government.
Oil & Gas Authority: The Government’s move last week to establish the Oil & Gas Authority (OGA) as a fully independent regulator is another encouraging sign for the industry. In doing so, the OGA will receive a wealth of new powers from Government, including the power to resolve disputes, and the power to intervene and sanction parties which fail to abide by the UK’s oil and gas recovery strategy requirements. This will allow the OGA greater scope to improve efficiency and industry cooperation in the North Sea, and shows that the Government is committed to seeing the UKCS remain a major player in the global oil and gas market.
Annual Party Conferences: In spite of these positive signs, there was a noticeable lack of attention paid to the oil and gas industry at this year’s Conservative Party Conference. In many respects, no news is good news, and the Tories’ silence contrasts starkly with the Labour Party’s announcement that it will ban fracking and tighten current tax breaks for shale gas. Nonetheless, it is revealing that, in contrast to her predecessor David Cameron (who typically devoted significant attention to energy policy at conferences), Prime Minister Theresa May made just one vague reference to energy in her two keynote speeches.
The way forward: With Brexit-related issues currently taking up much of the new Government’s time, the reality is that energy policy is likely to take a back seat. The Government is unlikely to pick winners in the energy industry, and will want to see companies taking charge of their own destiny. The oil and gas sector, therefore, must prove to Government that it can thrive on its own. While the Chancellor’s Autumn Statement will provide more policy clarity on future financial arrangements for the oil and gas industry, the Government’s generosity will not be infinite. UK oil and gas companies need to continue focusing on and boosting efficiency and productivity.
UKCS firms have come some way in doing this, but there is more work to be done. Moving to a lean and profitable business model which impresses the Government will require adopting new methods of working. This means thinking differently about how to start new projects, and not being afraid to embrace innovative solutions, such as using sophisticated economic modelling on projects. It also means taking a more collaborative approach to business, such as by embracing consortium building and innovative financing techniques. Collaboration is already popular in a number of industries such as aerospace, in which operators and Tier 1 OEMs collaborate to standardise processes and interfaces, thereby reducing operating inefficiencies such as duplication. At io, we believe that innovative and collaborative solutions are required to help our clients get projects going in this potentially lower forever price environment.
If UK oil and gas companies can successfully execute this efficiency drive, the rewards could be significant. The Government will come to see the oil and gas industry as a model of effiency-driven growth and an indispensable part of the UK’s energy mix in the decades to come. On the other hand, if the oil and gas industry is slow to cut costs and strengthen its balance sheet, the Government may decide that the sector is in decline, and choose to prioritise other parts of the energy sector. Politicians’ perceptions matter. Rather than waiting to be backed, the oil and gas industry must show the Government that it is a winner.