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Interview

with Chris Strang, Director, Well Services Contractors Association (WSCA)

24.06.2008 / Energyboardroom

What was the vision behind the creation of the Well Services Contractors Association almost a decade ago in the UK?

The Well Services Contractors Association (WSCA) was established as a trade association in 1999, back in the days of $10/barrel oil. During those difficult times for the industry, our members felt that it would help to have an association defending their interests in the UK. Having a trade association allowed the general interests of the well services contractors operating on the UKCS to be represented at a time when there were a great deal of contractual issues between operators and contractors. So WSCA was set up as an exclusively UK organization, and continues to represent the interests of the well services contractors, being careful to ensure that we avoid areas which could be considered anti-competitive.

Which do you consider to be the main milestones and achievements of the association over these last 8 years?

WSCA has been instrumental in getting the well service contractors’ views across in the UK, particularly during those tough times. Afterwards, the association has remained active through a number of groups dealing with different issues of interest to our members. One of the key groups works on standardizing contracts and processes in the industry, which has helped make business between operators and contractors more efficient. There are also groups dedicated to important issues such as safety and human resources. A big issue for the industry these last several years has been the EU’s Working Time Directive, which has ended up with many companies being taken to industrial tribunals. WSCA is happy to see that none of its members has been involved in these cases, and I think that having this association has helped us avoid such a situation.

In addition, WSCA produces an annual report which gives a picture of the state of the well services sector in the UK. The report contains information on revenues, profitability, capital expenditure and investment, employee numbers and also captures members’ views on the main issues facing the well services sector which drives future activity of the association.

How does WSCA interact with the myriad of other trade associations and special bodies in the UK which are related to the oil and gas industry?

There are frequent meetings and various scenarios where WSCA gets together with the other representatives of the UK’s oil and gas sector. In particular, there is a Supply Chain Forum and an initiative called ‘Step Change in Safety’ which focuses on safety issues for the industry.

Now that the situation regarding the price of oil has significantly changed in favour of the industry when compared to the moment of WSCA’s creation, do you think the organization is more or less relevant for its members?

The times are certainly very different. When WSCA was created, the industry was in decline and there was very little work to go around. It was important for the well service contractors to work together to overcome some of the challenges they were facing. Nowadays, everyone is very busy and overall WSCA members are quite satisfied with the business environment in the area. The main concern they are having at the moment is getting enough equipment and qualified people to do the work required.

However, we must continue to guard against complacency – the UK is a mature area with rapidly increasing unit costs, due to declining field production rather than contractor costs and we cannot rely on the oil price remaining at current levels. WSCA members continue to see efficient operations and business practices as being the key to the future and a trade association is seen as helpful in achieving these aims.

Just how difficult are well service companies in the UK finding it to have enough skilled workers and the necessary equipment to keep up with demand?

In the UK the big expansion in activity has been over the last two years, with things tending to stabilize now, so the main challenges in terms human resources were at the beginning of this boom. A few years ago, there were a lot of people moving between contractors or going back to the operators which had for a long time been outsourcing a good deal of engineering work. With the upturn in activity, the operators brought a lot of the engineering back ‘in house’ and recruited heavily from the contractors which obviously caused problems for the contractors who were stretched to provide people to meet the increased work demands. There was also considerable movement of personnel between contractors as salaries increased to attract people. The situation is now more stable with WSCA members generally adequately manned to meet current activity levels.

In terms of equipment, in the first half of the decade there was a considerable resource flight to other areas in the world where activity levels were higher and better returns could be achieved on use of the equipment. Happily, this is no longer the case and over the last two years there has been significant investment in capital equipment which is indicative of the confidence well services companies have in the future of the oil and gas sector in the UK.

How is the UK’s taxation regime impacting E&P activity in the area?

I believe that the UK fiscal regime is fairly competitive by international standards, though over the last several years new supplementary taxes have been imposed on the operators which could be damaging to activity levels, particularly if there is a significant drop in the oil price. Operators need to make business plans many years into the future, and sudden changes like the two increases in Supplementary Corporation Tax add uncertainty which is likely to affect future investment decisions.

The operators are also concerned about increasing operating costs, particularly rig rates which have increased substantially in the last couple of years in response to the increased demand.

Overall, however, the business is very healthy and from the contractors’ side there is little to complain about. We are very aware though that this has always been a cyclical industry and there is no guarantee that things will remain so buoyant, even if in the short/medium term the oil price is likely to remain high.

As the supermajors have largely been moving on to more buoyant oil and gas regions, many medium and smaller sized companies seem to be moving in to the E&P scenario in the North Sea. What impact is this trend having on well services contractors’ business?

The well service contractors view this trend favourably and welcome the arrival of these new entrants. Smaller companies tend to increase investment in the assets they acquire, leading to increased activity for contractors. It is very encouraging to see operators such as Apache, Talisman, Fairfield, Lundin and others which are acquiring mature assets from the majors and really dedicated to working them. Overall, it leads to greater activity in the region so WSCA members are satisfied.

The local government has two main objectives with regards to the oil and gas industry, which are to encourage overseas companies to establish headquarters in Aberdeen and to further internationalize local players. Do you think that these goals can be achieved?

I know that Aberdeen City Council and the Aberdeen and Grampian Chamber of Commerce are keen that this should happen. It is very heartening that BP has recently opened its new office complex and Chevron is developing a technology centre. Halliburton, one of the major WSCA members, has also announced that it will be building new headquarter offices in the city.

It appears likely that the UKCS will remain an important oil province for the next three /four decades and, as such, the contractors will have a major presence in Aberdeen. However, contractors are highly mobile and their resources will always go where their return on investment in people and equipment is the greatest. In my view, there has to be a critical mass of UKCS activity to ensure that contractors keep main offices in Aberdeen. Aberdeen does have an advantage in that the UK is politically stable whereas some operating areas are less so. Educational standards in the UK are high, so it will remain a good source of technically competent engineers and other professionals.

In reference to the internationalization of Aberdeen’s oil industry, many companies are already quite active overseas and figures show that an increasing proportion of their revenue comes from international activity. This is very healthy and there are governmental initiatives to support companies in their expansion overseas. In the well services sector, Expro Group is a good example of a company which was created back in the 1970s in the U K and has established itself as a successful player on the global scene.

WSCA’s assessment is that business will remain good but more stable over the coming years. Aberdeen is buoyant, but we must keep in mind that we are competing for resources with other parts of the world. From a contractor’s viewpoint, we must ensure that returns on investment remain competitive with other areas. This is best achieved by ensuring that the UK industry is operationally efficient through operators and contractors working together to identify and use the most cost effective technologies. This is of critical importance in a mature area like the UKCS. Business processes also need to be efficient and in the UK we have developed the tools – Standard Contract and Invitation to Tender documents are examples – to achieve this.

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