BRITAIN is missing out on billions of pounds in tax revenues from the oil and gas sector because of “Jurassic” working practices and a lack of strategic thinking, the head of an Aberdeen-based consultancy has warned.
John McConnachie, managing director of John Brown Consultants, said companies are delivering “mediocre” performance from their North Sea assets and are more concerned about share prices and short-term profits than developing more efficient ways of working.
As a result, he believes topside facilities in the North Sea are underproducing by at least 10 per cent, which equates to “billions of pounds” in lost revenue for the taxman.
According to Oil & Gas UK, the industry paid £11.2 billion in corporate taxes on production in 2011-12, equivalent to almost 25 per cent of the total corporation taxes received by the Exchequer.
Mike Tholen, economics director at the trade body, said: “The UK’s offshore oil and gas industry continues to focus on delivering a sustainable long-term business.
“Key to supporting the industry’s ability to achieve this goal is its partnership with the government in Pilot, a forum which advances initiatives directed at reducing cost, eliminating barriers and maximising the effectiveness of resources.”
Pilot – formerly the Oil & Gas Taskforce – is a joint programme between the industry and the UK Government, and is chaired by Energy Secretary Ed Davey. At its most recent meeting in November, the forum acknowledged that more work could be done to improve recoveries from the North Sea, as “we are leaving more than half the hydrocarbons behind”.
However, McConnachie said there was a lack of joined-up thinking across the industry, with oil companies and contractors working in “silos”. More work should be brought back in-house to improve efficiency, he said.
While the problem was not unique to the UK, McConnachie claimed the North Sea was “a bit more backwards” than Australia and Brazil, where the industry is “more open to new ideas and technology”.
McConnachie, who has worked in the industry for 33 years, added: “Aberdeen is not a strategic centre; it’s an operational centre. They don’t think long-term and there’s no continuity in the thinking process from the chief executive – who’s interested in market capitalisation and profit – to the engineers or technicians offshore.”
His criticism follows a warning last month from engineering recruitment firm Matchtech that Scotland’s oil and gas sector is facing a dearth of qualified engineers, and work was being lost to other parts of the UK and even Norway because youngsters see IT as a more attractive career choice. However, McConnachie said a lack of people is not the only problem, as the industry also needs to develop a longer-term attitude to getting the most out of its dwindling resources.
“The magic thing is that it costs nothing to get these up to where they should be. All it needs is a change in the way people think,” he said. “This stuff is not difficult, but they need to change. They’re Jurassic. I don’t think some of them are ready for the jet age – they’re still in the propeller age.”