HAVING spent nearly 30 years in military, retail and supply chain operations, moving into the oil & gas sector was met by some trepidation and excitement by myself.
Colleagues from previous companies remarked to me how fortunate I was to be joining such a strong sector, with prices so over valued for the main commodity it produces.
That was a year and half ago, when Brent Crude was $111 a barrel and now it is $44 a barrel, over 60% lower.
A remarkable change in commercial dynamics, and the impact on the local and regional community is evident to all.
Interestingly, this is not the first time I have experienced such deflationary pressure on commodity values.
Just prior to the turn of the century, I was involved in the audio, television and computer retail sector.
At that point, technology was advancing fast … really fast!
New chipsets were being announced every three to six months and as such, the commercial shelf life of new computer was at times as little as eight weeks before being made obsolete by a newer, higher specified machine.
The net result of this, given the fear of being left with high value items that had no retail value, was to cut the selling price to ensure product lines were cleared.
The average price for a good entry level laptop therefore moved from £1,300 to circa £600 over the period of about a year and has broadly stayed there ever since.
This necessitated a complete overhaul into how the company I then worked for operated its business model.
The traditional retail approach of bulk purchasing power to secure substantial discount was simply unprofitable as the company would be left with unsellable items.
This was all about optimising the manufacturing and supply chain, “just in time” philosophy, and lean operations through continuous improvement methodology, minimal intervention and innovation.
Despite considering ourselves to be a commercially efficient company, these approaches saved over 24% in running costs, halved tied capital and liberated real estate.
All originally considered unattainable.
Whilst there are similarities between the above case study and the current oil market conditions, there is one notable difference … demand.
There was an insatiable demand for new technology which created a significant customer pull on computer products.
This surge in demand drove growth and thus the opportunity to leverage economies of scale through improved efficiencies.
The price drop was driven by the need to move obsolescent stock.
With oil, the demand has dropped, over-production has resulted in a glut and that over-capacity has driven the price down.
Does the industry wait for the next upturn or does it challenge itself on how productive it
actually is?
Why do this?
Those who have worked in the industry for some time keep saying that it is cyclical, we’ve seen it before, it will come back …. but will it?
The price of entry level laptops has not recovered to £1,300!
In 2000, the price of Brent Crude was $25 a barrel, rising to a peak of $146 a barrel in July 2008, with a low of $35 a barrel in December 2008.
The price then recovered and stabilized at around $111 for about two years before dropping to the current level of around $45 a barrel.
Interestingly, $25 in 2000, adjusted for inflation, would be $35 in today’s prices, depending on which index is used.
At $45 a barrel, all else being equal, it could therefore be argued that even now, oil is 28.5% over priced in real terms compared to 2000.
As such, this low price could well be the new norm for some time to come and as such, the need to optimise is clear if long-term production from the North Sea is to remain commercially viable.
And within Aberdeen-based companies, there is the skill base to achieve this.
In addition, the existing skill base needs to be challenged further to enhance techniques in order to drive efficiency further with no compromise to safety.
Maersk Training has gone beyond the industry standard of offering requisite and mandatory training for oil and gas crews.
Instead, it is devising to drive the bar higher by enhancing courses looking at team dynamics, improved response to difficult circumstances, and more efficient drilling and well control techniques.
Case studies with customers have shown how these enhanced packages drive commercial performance without compromising safety.
This enhanced skill base, in itself, will be a highly valuable and marketable product for the future as oil revenues reduce from the North Sea.
Aberdeen and the local region has the opportunity to migrate from a “manufacturing” based production sector to “service” providing economy, exporting that skill base to the global oil and gas market.
Investment is required to ensure that the physical infrastructure of the region is of a global standard such that companies see no reason to move away when oil production diminishes.
Equally, there needs to be investment in the technical skills hub to ensure Aberdeen effectively becomes a global seat of learning.
This cannot happen overnight, but there is time to achieve this – however, investment and planning needs to start now.
So, why does Aberdeen need Constant Care?
Maersk Training was founded on the parent company’s core values that are over 100 years old and have not changed.
The most important is considered to be Constant Care and is expressed as “take care of today, actively prepare for tomorrow”.
Clearly this is a statement applicable now to this region, as it was over a century ago to a small fledging new company founded by Capt Peter Maersk Moller.