Industry at large

CERA reports on ‘recession shock,’ Deloitte on M&A, AD Little on expats and CNN on Aramco.

A couple of reports from Cambridge Energy Research Associates* provide an in depth analysis of the ‘Recession Shock’ that is happening to the oil and gas industry. Costs have risen dramatically in the last few months (albeit with signs of a recent reprieve) as the oil price drops in the face of what CERA estimates as a 300,000 bopd decline in demand for 2008. The medium term impact of reduced E&D budgets may well sow the seeds for the next oil price spike sometime in the next 5 to 10 years according to CERA.

The question of who will be around to see the next boom is addressed in a report by Deloitte’s Anna Andersen. Deloitte notes a significant imbalance in market reactions to the squeeze as major oil company shares are down only one third since May, but the AIM index of midcap oils is down by 60%. Moreover the cash crunch is hitting the midcaps harder than the relatively debt free majors. The possibility of a January Acquisitions and mergers (A&M) ‘sale’ is to be weighed against the likelihood of the situation worsening over the next few months, with putative acquirers—majors, large independents and NOCs, adopting a ‘wait and see’ stance well into 2009.

A report ‘Expat Games**’ from Arthur D. Little (ADL) addresses the issue of who will be working for the expanding NOCs, noting that ‘the promise of localizing talent in the Middle East oil & gas industry has yet to be realized.’ The ADL report claims that ‘forty years on, the Middle East’s oil and gas sector still relies on a highly paid, short-term, expatriate workforce.’ Despite the intention of developing a local talent pool through ‘systemic’ knowledge transfer, today’s NOCs ‘continue to rely on expatriate talent.’ Mid Eastern NOC’s need to abandon their ‘hierarchical, centralized, and slow-moving business models.’

A different slant on the efficacy of one Mid Eastern NOC can be seen on a recent CNN webcast*** featuring Lesley Stahl. Saudi Aramco’s ‘slow moving business model’ has resulted in a mind-bogglingly advanced control center for its country-wide operations. Aramco president and CEO Abdallah Jum’ah can be seen showing off the control room where ‘every facility, every pipeline and every valve in the Kingdom is monitored and controlled.’ An interesting facet of Aramco’s operations is the use of ‘geosteering by instant messaging,’ controlling a bit 3 miles down on a rig 400 miles away!

Although the ‘graying’ workforce and staff shortage issues will likely become less acute as the recession bites, a report**** from Oil & Gas UK on the demographics of the oil and gas sector suggests that the problem may have been overstated. In the UK today, the average oil ands gas worker is 41 years old, pretty well the same as any workforce. Chris Allen, health, safety, social and environment director with Oil & Gas UK, explained, ‘The average age of the offshore workforce has remained unchanged from 2006 and also shows steady growth in the female workforce.’ Oil and Gas UK uses Bebo and Facebook to communicate on the merits of the industry to school leavers. The offshore research leveraged data from the internet-based Vantage ‘personnel on board’ system.





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