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The Sea of Lost Opportunity HANDBOOK OF PETROLEUM EXPLORATION AND PRODUCTION 7 Series Editor JOHN CUBITT Previous volumes in the series: Volume 1 Operational Aspects of Oil and Gas Well Testing Volume 2 Statistics for Petroleum Engineers and Geoscientists Volume 3 Well Test Analysis Volume 4 A Generalized Approach to Primary Hydrocarbon Recovery of Petroleum Exploration and Production Volume 5 Deep-Water Processes and Facies Models: Implications for Sandstone Petroleum Reservoirs Volume 6 Stratigraphic Reservoir Characterization for Petroleum Geologists, Geophysicists, and Engineers HANDBOOK OF PETROLEUM EXPLORATION AND PRODUCTION, 7 The Sea of Lost Opportunity North Sea Oil and Gas, British Industry and the Offshore Supplies Office Norman J. Smith Amsterdam • Boston • Heidelberg • London • New York • Oxfor d Paris • San Diego • San Francisco • Sydney • Tokyo Elsevier The Boulevard, Langford Lane, Kidlington, Oxford, OX5 1GB, UK Radarweg 29, PO Box 211, 1000 AE Amsterdam, The Netherlands Copyright # 2011 Elsevier B.V. All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone (þ44) (0) 1865 843830; fax (þ44) (0) 1865 853333; email: permissions@elsevier.com. 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This page intentionally left blank Contents List of Tables ix List of Charts x List of Figures xi Acknowledgements xiii Preface xv 1. In Europe’s Sick Bay: Britain before North Sea Oil 1 1.1 The British Balance of Payments Problem 2 1.2 Oil and the Balance of Payments 4 1.3 British Economic and Industrial Decline 10 1.4 An Insufficient Inheritance: The British Oilfield Supply Industry 19 2. The Genesis of the North Sea Oil and Gas Industry 23 2.1 The Move to the North Sea 24 2.2 The Technological ‘State of the Art’ 26 2.3 The United Kingdom Position 36 2.4 Potential European Competitors 50 2.5 Perceptions of the UKCS Hydrocarbon Resource Base 53 2.6 The New Technical Challenges of the North Sea 56 3. Motivations and Constraints 61 3.1 The Exploration and Production Companies 61 3.2 The British Government 69 3.3 British Industry 80 3.4 Finance 85 4. Before OSO: Offshore Supplies 1963–1972 93 4.1 Oil Company Attitudes to British Suppliers 94 4.2 Government Attitudes to British Suppliers 97 4.3 The IMEG Report 98 4.4 An Assessment of the Period 100 vii 5. OSO’s Formative Years 1973–1980 109 5.1 The Course of Demand 110 5.2 OSO Operations in Context 111 5.3 OSO and the Machinery of Government 114 5.4 Some Key OSO Issues of the Period 117 5.5 The Supply Industry 141 6. OSO’s Long March into History 1981–1993 169 6.1 The Course of Demand 173 6.2 OSO Operations in Context 174 6.3 Some Key OSO Issues of the Period 175 6.4 The Supply Industry 186 7. Assessing OSO 203 7.1 Third-Party Commentary 203 7.2 One Insider’s View 208 7.3 OSO’s Statistics 212 7.4 A Summing-Up 215 8. Case Studies and Expert Testimony 219 8.1 Market Segment Case Studies 219 8.2 Corporate Case Studies 225 8.3 Expert Testimony 238 9. Looking Back on a 30-Year Journey 247 9.1 Some Propositions 247 9.2 Some Conclusions 253 9.3 Could it have been otherwise? 256 10. Postscript 265 10.1 The UKCS Oil and Gas Industry and its Supply Sector today 266 10.2 What of the Future? 274 Source Materials 283 Glossary 293 Index 301 Contentsviii List of Tables CHAPTER 1 Table 1.1 UK Oil Trade 1964–1974 (Money of the Day) 5 Table 1.2 Summary of Potential Balance of Payments Effects from North Sea Oil (or Oil and Gas) for 1980 (£ billion) 7 Table 1.3 Excess Costs and Programme Delays in Major UK Projects (Late 1950s to Late 1960s) 15 Table 1.4 Attributed Causes of Delay in Construction of Large Industrial Sites 16 CHAPTER 2 Table 2.1 Some Key Offshore Innovations 1949–1963 34 CHAPTER 3 Table 3.1 Important Offshore Legislation 1964–1978 68 Table 3.2 Relative Weight of Factors Influencing Government Policy 79 CHAPTER 5 Table 5.1 UK–U.S. Joint Ventures with Probable OSO Involvement 149 Table 5.2 Some Early British Offshore Champions and Entrepreneurs 154 Table 5.3 Companies Founded by Former Vickers Personnel During the 1970s and 1980s 168 CHAPTER 7 Table 7.1 Policies Employed in the UK, Norway, and France and Their Beneficiaries 206 CHAPTER 8 Table 8.1 Public Sector Group’s View of the Main Constraints Faced by British New Entrants to the Offshore Service and Supply Sector 240 Table 8.2 Private Sector Group’s View of the Main Constraints Faced by British New Entrants to the Offshore Service and Supply Sector 241 Table 8.3 Opinions on British Government Support Policies for the Offshore Indus try 242 CHAPTER 10 Table 10.1 Some Post-1998 Initiatives 269 Table 10.2 Recent Foreign Takeovers of British Private Firms with Proprietary Technology and/or Strategic Market Positions 275 ix [...]... Although the improvement in the balance of payments permitted the reversal of the ‘stop’ measures and the resumption of ‘go’, the cycle reduced the long-term rate of economic growth and the productive potential of the UK because, in the view of Pollard (1984), the reduction of demand during ‘stop’ phases bore particularly hard on investment expenditure Pollard saw the origins of the ‘stop–go’ cycle in the. .. Appreciating the circumstances and perceptions of the time offers the prospect of an insight into the mind-sets of those who made the policy decisions 50 or so years ago When the offshore industry reached the United Kingdom (UK) in the 1960s, the country already had a well-developed industrial base and much prior experience in the exploitation of oil and gas It was the domicile of some of the world’s... in particular, the Queen Mother at the University of Aberdeen, the Templeman at the University of Kent, the London Business School, the Energy Institute, and the British Library In all cases, the staff gave freely of their time and expertise The same is also true of the staff at The National Archives, the BP Archive, Lloyds Register, and UKOOA (now Oil and Gas UK) where much of my research was conducted... balance of payments Treasury (1976) attempted to estimate of the potential balance of payments benefits of both oil and gas production It was at pains to emphasise the complexity of the undertaking and the imprecision of the results Given the particular caveats and assumptions employed, the resultant estimates showed the maximum balance of payments effect of North Sea oil Another estimate of the potential... an interest in the balance of payments effects of the North Sea, and as time passed these would increasingly reflect history as well as forecasts In early 1982, the Bank of England published a wide-ranging review of the implications of the development of the North Sea to the UK economy – see Bank of England (1982) As well as addressing the balance of payments, again pointing out that the results could... difficulties 1.1 THE BRITISH BALANCE OF PAYMENTS PROBLEM In the then world of fixed exchange rates and with the pound sterling still having the status of a reserve currency for many of the UK’s former dependencies, the most pressing of the constraints faced by British governments was usually the balance of payments The balance of payments was thus commonly perceived as the main ‘driver’ of short-term... effect b 8 The Sea of Lost Opportunity It would have been asking too much of the forecasters to have expected them to predict the oil price and the sterling/dollar exchange rate with either accuracy or consistency After the near quadrupling in 1973, the oil price rose slowly in nominal U.S dollar terms for the rest of the decade before more than doubling in 1979 and rising somewhat further the following... 1985 While the issue of what exactly to cover remained, the need to make assumptions had become less A discussion of the broader implications of North Sea revenues concluded they neither 10 The Sea of Lost Opportunity justified a spending ‘bonanza’ nor necessitated major structural change to the British economy From about 1980 onwards concerns about the balance of payments ceased to pre-occupy the government... North Sea oil found it convenient to ignore some of the most intractable issues, such as the future course of oil prices and in particular the effect on the exchange rate and thus on activity in the ‘non-oil economy’ Nevertheless, as the 1970s progressed, the growing number of optimistic projections gave the government good reason to believe that rapid development of the resources of the North Sea would... some of the papers considered above For instance, it stressed that the resource costs of developing North Sea oil were high and that the international oil price rises of the 1970s had cost the UK more than it had gained from the discovery and development of the North Sea, although that still left the UK better off than other industrialised countries forced to continue to import This was because at the . HANDBOOK OF PETROLEUM EXPLORATION AND PRODUCTION, 7 The Sea of Lost Opportunity North Sea Oil and Gas, British Industry and the Offshore Supplies Office Norman. Inheritance: The British Oilfield Supply Industry 19 2. The Genesis of the North Sea Oil and Gas Industry 23 2.1 The Move to the North Sea 24 2.2 The Technological