Energy & Climate Change Select Committee

Evidence session with Andy Samuel, CEO – Oil & Gas Authority and Patrick Brown, Chair – Oil & Gas Authority

Tuesday 3rd November 2015

RMT organise around 6,000 offshore workers, employed in all sectors, from drilling and exploratory diving to catering andmaintenance engineering workers on installations. We estimate that over 12,000 jobs have been lost in the UK offshore sector specifically since the summer 2014 downturn in oil prices. This figure rises to 65,000 when job losses across the offshore supply chain are included.

Key points:

  • The clearance of safety critical maintenance backlogs continues to be neglected by industry and threatens long term sustainable recovery of North Sea reserves.
  • The OGA will struggle to revitalise exploration if the industry continues to haemorrhage jobs and skills, as well as undermining collective bargaining agreements such as the Offshore Divers Industry Agreement.
  • The offshore skills base is under serious threat from the way maximising economic recovery is being interpreted and the OGA must influence commercial behaviour in the offshore industry to protect the domestic skills base.
  • OGA should be represented on the industry body currently being set up to oversee the introduction of the EU Offshore Safety Directive.
  • The OGA must challenge practices in the offshore supply chain such as social dumping on offshore supply and decommissioning vessels, if it is to affect changes to the culture and commercial behaviour of offshore oil and gas companies in order to maximise sustainable economic recovery.

Safety Critical Maintenance

Prior to August 2014, 36 out of 42 months saw an oil price of over $100 per barrel. During that period, production was prioritised over clearing the backlog of safety critical maintenance work which often requires total installation shutdown/non-production. Now, given the well documented slump in oil prices, oil and gas companies and their contractors are claiming lack of income for the lack of activity in clearing the safety critical maintenance backlog.

Indeed, Oil and Gas UK’s industry safety report from July 2015 recorded another increase in the safety critical maintenance backlog[1]. There are three categories of safety critical maintenance work: planned, corrective and deferred. In all three categories over 2014 there were major increases in the average number of man hours that would be required to clear the backlogs, with particularly large increases in corrective (where the number more than doubled in the second half of 2014 to over 2,700 man hours) and planned (increased over 25%). The deferred safety critical maintenance backlog grew around 15% and exceeded 4,000 man hours by the end of last year, the largest figure of the three categories.

This is particularly significant, as the period reviewed by OGUK covers the first six months of low oil prices.

The reporting of Safety Critical Maintenance backlogs is voluntary, although OGUK assured the HSE and Government that ‘around 70%’ of oil and gas companies participated in the latest report. However, this still of course leaves over a quarter of operators in the North Sea unaccounted for and has a direct impact on the safety and sustainability of production in the UK’s oil and gas fields.

It should also be noted that the number of Improvement Notices relating to maintenance issued by the HSE to installation operators has increased, from 9% of the 2014-15 total up to 25% for the total in 2015-16 to date.

If they have avoided losing their job, offshore workers have already had, in most cases, 3-week on and 3-week off shifts imposed, along with cuts to sick pay, leave entitlement, pensions and travel allowances; the effects of which mean longer exposure time in a major hazard environment, over 300 additional working hours annually, and an average reduction of 20% of staff on installations.

We would argue that the risk to their safety has also increased significantly, as they are expected to work longer for no extra money on installations, in some cases with a significant and growing backlog of safety critical maintenance work.

The consequence of these attacks on the morale of the remaining offshore workforce has been considerably negative. Added to this, changes to accommodation regulations seeing higher cabin occupancy rates and ongoing anxiety over the safety of helicopter operations, staff morale has plummeted to dangerously low levels.

We should also point out that this is a DECC issue as continued neglect of the safety regime, including the backlog of safety critical maintenance work, not only jeopardises installation safety standards enforced by HSE but it also threatens the industry’s ability to sustain long term production in the North Sea.

Given the provisions in the Energy Bill to equip the OGA with powers, including licensing of new developments offshore and the fact that the OGA will eventually be funded by industry, RMT believe that the OGA must intervene where standards in offshore safety threaten the future sustainability of maximum economic recovery.

Revitalising exploration

Since the fall in oil prices in summer 2014, RMT has argued that any incentives to the oil and gas industry, particularly in exploration and production, should be tied to protections for incumbent workers. Regrettably, the Chancellor has chosen to introduce unconditional fiscal incentiveswhich have allowed oil and gas companies and their contractors to further loosen the ties between the industry and UK offshore workers.

We are also concerned that the OGA is under reporting the extent of job losses in the North Sea since the current crisis took hold. In his introduction to the Call to Action: Six Months On from September, Andy Samuels states that

“...this has led to the loss of around 5,500 jobs since late 2014.”[2]

We believe that over 5,000 jobs have been lost in the drilling sector alone since late 2014, and that the total number of job losses in the offshore industry over that period is well over 12,000.

In the diving and diver support sector, only last month RMT has been told that Subsea 7 are laying off 550; Technip 360; Helix Well Ops 100; Bibby 60. In addition to these compulsory redundancies we are seeing diving companies from other EU member states move into the UK sector and win contracts based on wage rates up to 50% below the rates established by industry and the unions in the Offshore Divers Industry Agreement (ODIA). The unregulated behavior of companies such as Boskalis has the potential to break the collective bargaining structures attending the ODIA, as the signatory companies cannot compete with such low costs, even if our members were to accept the 10% pay cut they have been offered in this year’s pay talks.

The OGA must support meaningful regulatory responses to the loss of skills and undermining of collective bargaining agreements in the offshore industry.

OGA seat on Offshore Safety Directorate

We understand that Oil and Gas UK (OGUK) has called for the OGA to beprevented from taking a seat on the new ‘Competent Authority’ set up in line with the demands of theEU Offshore Safety Directive. OGUK’s position undermines that set out by the OGA in the ‘Call to Action: Six Months On’ (Paragraph 5.6)document produced in September in which the OGA state that it is committed to ‘engage with other regulators.’

This raises serious concerns over the behaviour of industry toward the new regulator, not least because the offshore industry itself will eventually fund the OGA under the Government’s plans, as set out in the Energy Bill.

The OGA must be represented on the Competent Authority, as safety is a central component to maximising sustainable economic recovery in the North Sea.

Impact on the supply chain

With over 65,000 jobs having been lost in around 12 months across the supply chain supporting the UK offshore sector, it is clear that the OGA must take action to change the culture and commercial behaviour which exacerbates the damage being done to the skills base during times of low oil prices. Over 30,000 jobs have also been lost in the Norwegian supply chain during this period.

In the offshore supply sector alone, over 1,000 jobs have gone and a record number of supply vessels are laid up in Aberdeen. Companies such as Gulfmark, who have UK flagged vessels and UK seafarers, are being undermined by Norwegian Second Register vessels, crewed at low cost with non-EEA seafarers, who offer day rates some two thirds lower than domestic operators. This is causing havoc amongst domestic operators, who have used compulsory redundancy to cut UK based workers and demanding pay cuts of up to 15% for the remaining workers.

This sort of unregulated commercial behaviour must be addressed if the ripple effects from the low oil price do not completely decimate the skills base in the offshore supply chain.

We believe that this will require cultural change and are pleased that the OGA recognise the significance of cultural change and the dangers of ‘overzealous legal and commercial behaviour’[3] in the UK Continental Shelf.

The growing decommissioning industry also needs to be regulated more effectively, otherwise the maximum economic benefit to the UK of the skills base attending the decommissioning of North Sea assets will be lost.

For example, the recent deal between Shell and Allseas to decommission installations in the Brent Oil Field does not provide for any UK jobs on the enormous decommissioning vessels required to undertake this specialist work.

In addition, it is more likely that decommissioning of UK North Sea assets could be introduced prematurely when maximising economic recovery does not proceed on a sustainable footing.

The OGA need to take action to change over zealous commercial behaviour in the domestic supply chain supporting the UK offshore sector, including recruitment practices in areas like offshore supply and decommissioning.

1

[1]Pg 20-21, OGUK Health & Safety Report 2015

[2]Pg. 3 OGA – Call to Action: Six months on

[3]Call to Action: Six Months On, para 1.8, page 7.