OEG Energy site visit & a 'crude' chat with its boss

Last week The Oilholic headed to sunny Scotland for a very interesting visit to one of OEG Energy's industrial sites in Aberdeen, with none other than its Chief Executive John Heiton. 

The scene of the walkabout was the global mission critical offshore logistics group's state-of-the-art Cairnrobin chemical plant.

This impressive six acre site, just south of Aberdeen's city centre, serves as OEG's storage, servicing and processing hub for a wide range of chemicals and aviation fuel on behalf of a veritable-who's-who of the energy business. It was fascinating to observe the place, its personnel, their processes and top-notch North Sea standard protocols on safe and secure handling of their operational tanks. 

The site visit was followed by a long overdue conversation with Heiton about how he is reshaping OEG along two offshore business silos under one group umbrella - traditional offshore energy and renewables. As it appears, after three years of painstaking work and over a dozen acquisitions, in 2023 the company managed the milestone of a near 50%/50% split in revenue between its traditional and renewables units. 

Heiton described it as the inexorable direction of travel for OEG, with double-digit growth expected for OEG's renewables business over the near-term, and solid single-digit growth for traditional energy boosted by operations in emerging oil and gas extraction hubs like Guyana and Suriname, and established ones in Africa and the Middle East. 

The OEG boss - who's company has its footprints in over 60 global locations - also said he'd encountered the same hike in shipping rates between Asia and Europe via the Red Sea as the readers of this blog (and The Oilholic's sources in Singapore) report, i.e. an uptick of 300% to 350% since November! 

That's when attacks by Yemen's Iran-backed Houthi rebels began on international energy and commercial shipping in the key maritime artery. 

"However, shipping rates from Australia to China have also gone up and there are no security issues there! So while some of the cost hike (since November) is related to the troubles in the Red Sea, shipping lines may also be using it as an excuse," Heiton said. 

On the subject of oil demand growth in 2024, OEG is going with the International Energy Agency's conservative forecast of 1.1 million barrels per day (bpd). "Part of it has to do with operational prudence in going for the lower end of global oil demand growth forecasts, rather than much higher forecasts out there. 

"However, where demand growth goes this year does not materially impact us as a business because a lot of global spare capacity is onshore based. Volume produced by the offshore fields we service doesn't make much of a difference to us as a critical logistics provider. They'd ultimately still require broadly similar levels of outsourced services we provide to the facility/platform in question."

Away from the exclusive snippets for this blog, do read The Oilholic's full interview with Heiton for Forbes here. It offers a much wider perspective on OEG's journey as a company in recent years. That's all for now folks, more blogging to follow later this week. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo 1: John Heiton, Chief Executive of OEG Energy (left) with Gaurav Sharma. Photo 2: Specialist storage tanks at OEG Cairnrobin Chemical Plant, Aberdeen, UK, February 2024. 

UK election result's impact on British Energy Inc

By all accounts, result of the UK General Election on May 7 was simply stunning. Pollsters got it horribly wrong, Prime Minister David Cameron’s Conservative Party returned with a majority against all expectations, Scottish National Party bagged 56 out of 59 parliamentary seats in the ‘oil hub’ of Scotland - all the ingredients to excite politically minded scribes and the general public alike. The Oilholic began his experience at Ellwood Atfield’s splendid election night bash in Westminster (photo above left) ushering in news of the first exit poll predicting the Conservatives were going to be the largest party with 316 members of parliament.

As events unfolded into early hours of the morning and late afternoon the next day, Cameron’s Conservatives returned with 331 MPs and a slim majority putting to bed all talk of a hung parliament. This blogger was up when Labour heavyweights Ed Balls, Douglas Alexander, Jim Murphy and Liberal Democrats ministers Vince Cable, Ed Davey, Lynne Featherstone and Danny Alexander all lost their seats.

Resignation of the hapless Labour leader Ed Miliband who managed to deliver his party’s worst election result since 1983 followed, along with that of Nick Clegg, now former deputy prime minister and Liberal Democrat leader. Cameron soon walked back into Downing Street after meeting the Queen and telling her he’d now form a majority Conservative government.

Having enjoyed the drama of election night well into sunrise the next day, it’s worth pondering what the result means for the UK’s energy industry in general and the oil and gas business in particular. Afterall, the Oilholic did fret about the direction of the market in his pre-election column for Forbes.

For starters, Ed Miliband’s barmy energy price freeze isn’t going to happen. A daft idea, daftly presented to maximum populist effect just didn’t work and is now in the dustbin of political history. This blogger expects ratings agencies to ease up both on UK-listed energy utilities Centrica, the owner of British Gas, and SSE, another service provider as well as the sector in general. 

Unsurprisingly, both stocks jumped as the entire London market welcomed the result on May 8 morning with the FTSE 100 momentarily returning back above 7,000 points. Nonetheless, Cameron’s government faces a very serious challenge of planning investment towards creaking energy infrastructure – from nuclear to renewables – ensuring the lights are kept on. By some estimates, the required capital expenditure could be as high as £330 billion by 2030.

Switching to the mainstream oil and gas business, both the Conservative victory in the UK and an SNP landslide in Scotland are broadly positive for various reasons. As this blogger has noted before, Chancellor George Osborne’s taxation policies turned positive for the industry towards the end of the last parliament, as the oil price decline began to bite North Sea players. 

Collective measures put into effect back in March imply that the UK’s total tax levy would fall from 60% to 50%, giving a much needed breather to those prospecting in the North Sea. Any further stimulus measures for the better are unlikely to be disrupted by the SNP, even if they do have a broader agenda of roughing up other government programmes both North and South of the Scottish border.

This is broadly good for the industry, as it goes through a challenging period and grapples with the restructuring in Aberdeen triggered by companies as large as BP and as small as independent operations services providers. 

Finally, turning attention to the new energy minister Amber Rudd, a Conservative MP for Hastings, who has been appointed as the successor to Ed Davey; the choice is a great one. Obviously, her credentials are solid or she wouldn’t be here. Gauging the response of the wider industry, most have welcomed the appointment.

Rudd is seen as conscientious and hard working minister. Even Greenpeace sent out a release welcoming her to the job, hoping that she’d bring the same energy to implementing the Climate Change Act, as she did to fight the corner of fisheries in her last government remit.

With a challenging portfolio, Rudd has her work cut out and we wish her well, especially as she sets about the arduous task of attracting investment to the sector. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: Ellwood Atfield election night party, May 7, 2015 © Gaurav Sharma

An ‘Atlas’ of e-learning for a contact sport

The Oilholic has had the pleasure of visiting quite a few E&P facilities over the years from offshore rigs to onshore gas fields. Going back roughly a decade, it wasn't uncommon [and still isn't] to see roughnecks in hard hats being given instructions ranging from operational to health and safety by a superior.

The mode of communication usually involved barking verbal instructions in highly colourful language with bulky printed training manuals on-hand containing everything from evacuation routes to rules and regulations. All of this has changed and rather dramatically, if one may add. What started as a slow, but sure, transformation at the turn of the millennium came in the form of former roughnecks and rig engineers imparting their wisdom for the benefit of budding on-site professionals via training courses using the electronic medium.

 

By 2006-07, e-learning provided by specialist providers had gained considerable traction in what is largely a contact sport. Among the stalwarts, in this relatively young but highly competitive market, is a part private equity-owned, part employee-owned educator headquartered in Aberdeen, Scotland called Atlas.

 

The firm came on the Oilholic's radar back in 2011 at the 20th World Petroleum Congress in Doha.  A further look into Atlas, at the suggestion of a banking sector contact, revealed a client portfolio of some of the biggest names in the business for a company which is less than 20 years old. IOCs aside, strikingly enough, this blogger found that a number of NOCs had also availed Atlas' service to give their workforces – as the educator's motto states – the "knowledge to perform."

 

For the sake of a crude analogy, the Oilholic quipped to Kevin Short, Director of Sales at Atlas, if they'd in fact become the Rosetta Stone of the oil & gas business. "I don’t think it is that simple, although our e-learning courses and industry solutions are indeed multi-linguistic," he laughs.

 

For Short, it's more about creating, marketing and selling virtual learning solutions aimed at "improving efficiencies while minimising operational and legislative risk". This could range from e-training courses for employees moving dangerous goods by air to a simple training solution for evacuating an E&P facility.

 

"There are industry standard courses available from our library; but more often than not, you'll find clients ordering bespoke solutions or an altered version of an existing training solution to suit their specific needs," Short explains.

 

There is no mystique about what Atlas provides and the company continues to record double-digit growth on an annualised basis, much to the delight of its PE owners [HG Capital] one assumes. Peer-to-peer contact and reviews have certainly been of immense help in achieving this – both in terms of retaining clients and bagging new ones. Over the years, Atlas has expanded to Dubai, Kuala Lumpur and Houston.

 

Understandably, the firm keeps abreast of new emerging techniques in the E&P sector, unconventional prospection activity and allied health and safety issues to come-up with e-learning options for clients.

 

However, the Oilholic put one caveat to Short – pros from Aberdeen who have gained expertise for better parts of four decades, especially on the health and safety front in wake of the Piper Alpha tragedy (1988), are also on the educating circuit from Dubai to Calgary and in great demand. So is Atlas toughing it out with them too?

 

"In a sense, perhaps yes. But in terms of the broader picture no! That's because we also work with some of these professionals a lot of the time and hire them as what we call 'Subject Matter Experts' to work on fresh concepts for courses and bespoke solutions for clients. What's good for them is good for Atlas and by default good for the commissioning client."

 

When it comes to fishing these guys out – networking, events, headhunting those with industry reputation and project-based demand all play a part. Such expertise has helped the company put together its patented Atlas Knowledge Centre – a 3,000 page grab of all of the company's core content. Akin to a virtual oil & gas knowledge encyclopaedia, it is made available to subscribers serving as a "refresher" or instant help-guide to learners.

 

But what about converting new clients around the e-learning viewpoint? Short says competency is key here. "We can help companies by ensuring that their recruits not only just sit the course but based on the information that's been given to them, they become competent to handle the tasks at hand. It is not just about providing reading and reference material but rather ensuring that the candidate is learning."

 

Atlas also has an advisory board to help it test run pilot courses and provide constant feedback. Last time the Oilholic checked, there were around 53 companies on board for such an exercise. Finally, the company is also rather careful in being shall we say 'electronic platform neutral'.

 

"If a client wants an e-learning solution to work on a BlackBerry we wouldn't urge them to adopt an Android OS system, or Apple OS. Ultimately, that's their call. We have a young team here who will tailor a course to the clients' IT requirements and subsequently licence it to them, rather than it being the other way around." A wise line to take indeed! That’s all for the moment folks! Keep reading, keep it 'crude'!

NOTE: November 1, 2013 - To read this blogger's interview with Atlas CFO Graeme Park for CFO World click here.

 

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To email: gaurav.sharma@oilholicssynonymous.com
 

© Gaurav Sharma 2013. Photo: Atlas HQ, Energy Park, Aberdeen, Scotland © Gaurav Sharma, October 2013.

A crude walk down 'Exploration Drive'

The Oilholic finds himself in the 'Granite City' or the 'Oil capital of Europe' as Aberdeen, Scotland has recently come to be known as. Given that context, a street named Exploration Drive in the city's Energy Park has a nice ring to it. In what has been an interesting week – news-wise, market reports-wise and otherwise – right up to this morning, it's good to be here, meeting old friends and making yet newer ones during been. While this blogger's flight got in on time, blustery conditions so common in this part of the world saw one plane overshoot the runway and the airport closed for a few hours. 

That wasn't the only news in town. Reports of the Libyan PM first getting kidnapped and then released, flooded the wires and Shell – Nigeria’s oldest IOC operator – has put up four oil blocks there feeding the Bonny Terminal (the country’s oldest export facility) up for sale, according to the FT.

The chatter, if formally confirmed, would be seen as a retreat by the oil major from a part of the world where theft of crude from pipeline infrastructure is rampant. Shell it seems is getting mighty fed up of constant damage to its pipelines. Moving on from news, it is worth summarising a couple of interesting notes put out by Moody's these past few weeks.

 

In the first, the ratings agency opines that BP can tolerate a moderate penalty related to the 2010 Gulf of Mexico oil spill without compromising its credit quality. However, a severe penalty resulting from a finding of gross negligence would change the equation according to Moody's, with Phase 2 of the trial to determine limitation and liability having begun stateside.

"BP can tolerate about US$40 billion in penalties, after taxes, under its A2, Prime-1 ratings. A ruling in line with the company's current $3.5 billion provision would leave some headroom to absorb other charges, including settlement costs from payouts awarded for business economic loss claims, which ultimately depend on the interpretation of the Economic and Property Damages Settlement Agreement," Moody's noted.

Other defendants in the case include Transocean, Halliburton and Anadarko. Of these, Transocean, which owned the Deepwater Horizon rig, is exposed to sizable fines and penalties. "Indemnifications will protect Transocean from some liabilities. But other items could ultimately cost the company billions of dollars to resolve," says Stuart Miller, senior credit officer at Moody's.

In its second note, the ratings agency said it had downgraded Petrobras' long term debt ratings to Baa1 from A3. The downgrade reflects Petrobras' high financial leverage and the expectation that the company will continue to have large negative cash flow over the next few years as it pursues its capital spending programme.

With that programme being the largest among its peers, Petrobras' spending in 2013 could be almost double its internally generated cash flow. The company's total debt liabilities increased in the first half of 2013 by $16.3 billion, or $8.36 billion net of cash and marketable securities, and should increase again in 2014, based on an outlook for negative cash flow through 2014 and into 2015. The outlook remains negative, Moody's adds.

Moving away from companies to countries, global analytics firm IHS has concluded that North America’s "Tight Oil" phenomenon is poised to go global. In its latest geological study – Going Global: Predicting the Next Tight Oil Revolution – it says the world has large 'potential technical' recoverable resources of tight oil, possibly several times those of North America.

 

In particular, the study identified the 23 "highest-potential" plays throughout the world and found that the potential technically recoverable resources of just those plays is likely to be 175 billion barrels – out of almost 300 billion for all 148 play areas analysed for the study.

While it is too early to assess the proportion of what could be commercially recovered, the potential is significant compared to the commercially recoverable resources of tight oil (43 billion barrels) estimated in North America by previous IHS studies. The growth of tight oil production has driven the recent surge in North American production. In fact, the USA is now the world largest 'energy' producer by many metrics.

"Before the tight oil revolution people thought oil supply would start to fall slowly in the longer term, but now it is booming. This is important because Russian production has been hovering at the same level for some time, and now the US will exceed the Russia’s total oil and gas production," says Peter Jackson, vice president of upstream research at IHS CERA.

In IHS' view, Russian oil production is unlikely to rise in the medium term. In fact, the firm anticipates that it will start falling because of the lack of investment in exploration in emerging areas such as the Arctic and new plays such as tight oil. "But of course, there is a long lead time between deciding to invest and exploring and then getting that oil & gas out of the ground," Jackson adds.

North America's growth in supply from the tight oil and shale revolution means that the USA is now less worried about the security of energy supply. It is now even thinking of exporting LNG, which would have been unheard of ten years ago, as the Oilholic noted from Chicago earlier this year.

This is having an impact on the direction of exports around the world changing direction, from West to East, for example to China and post-Fukushima Japan. Furthermore, light sweet West African crudes are now switching globally, less directed to the US and increasingly to Asian jurisdictions.

OPEC, which is likely to increase its focus in favour of Asia as well, published its industry outlook earlier this month. While its Secretary General Abdalla Salem el-Badri refused to be drawn in to what production quota it would set later this year, he did say a forecast drop in demand for OPEC's oil was not large.

The exporters' group expects demand for its crude to fall to 29.61 million bpd in 2014, down 320,000 bpd from 2013, due to rising non-OPEC supply. "Tight oil" output would be in decline by 2018 and the cost of such developments means that a sharp drop in oil prices would restrain supplies, Badri said.

"This tight oil is hanging on the cost. If the price were to drop to $60 to $70, then it would be out of the market completely." He does have a point there and that point –  what oil-price level would keep unconventional, difficult-to-extract and low-yield projects going – is what the Oilholic is here to find out over the next couple of days. That’s all for the moment from Aberdeen folks! Keep reading, keep it 'crude'!

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To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2013. Photo 1: Exploration Drive, Aberdeen, Scotland, UK. Photo 2: Weatherford site, Aberdeen Energy Park, Scotland, UK © Gaurav Sharma, October 2013.