The CheekyFrenchy Blog: a Frenchman in Britain

Sad day for the North Sea

An helicopter crashed yesterday in the North Sea coming from the BP Miller field. 16 people were on board and they probably all died although only 8 bodies were found immediately after the accident. The emotional impact of such a bad news is always immense in petroleum cities, that are organised around the oil and gas industry. Accidents are relatively rare, the level of safety awareness is so high including many safety trainings that it is almost a common belief that working  and traveling offshore is 100% safe. When an accident happens, the consequences are often big.

I have already been on  Miller and passed nearby several time when visiting other installations. Miller was often used for helicopters to refuel and to temporarily wait when an other installation nearby is foggy and landing is not immediately possible (although the pilots would tend to go back to shore or go the Shetlands instead).
The "survival training" is a three day training that has to be done prior to going offshore. It explains to extract from an helicopter that lands into the water and capsizes. Even the practice could be scary although it is in 25 deg swimming pool (far away from the 6 deg the north sea without the stress level associated with a real emergency landing). I have to admit sometimes some equipments are more difficult to use. I personally always struggled to use the re-breather, a device that helps to re-breath our own air in case of landing into water and always hoped that I never would need to use it. The training also teach who to behave in the water, i.e. how to be seen by the rescue  team (basically forming a big circle by holding each other, females at the outside of the circle and men inside). This makes unfortunately  believe that alive bodies in the water with such training should be seen quickly. It also makes believe that the additional 8 bodies will not be found alive.

When I heard about the news I run into my neighbours' house as I knew he was currently offshore...on the Miller. Fortunately his wife confirmed that he was not due to return until the week after so he was no part of that trip. However he knew everyone who was in the chopper at that time. The communication between the platform and the outside world was immediately cut to avoid the number of ever growing incoming phone calls in the afternoon. Only the OIM (Offshore Installation manager) could use the emergency line in the control room. The atmosphere onboard, as we can all imagine, was awful.
This is really a sad news, for the families and colleagues of those who are gone.

Miller is not producing anymore. It was the "perfect field". Longer than expected production plateau, rapid decline...investment paid back extremely quickly. 3 years ago the production was maintained at an extremely low level (almost to cover for the operating costs)  because the DF1 project targeted Miller as a preferred host. This innovative project intended to capture and reinject CO2 into a mature North Sea reservoir to reduce atmospheric emissions and to provide enhanced oil recovery. When this project was killed, the decommissioning of Miller started. All people on board are now preparing this platform decommissioning.

Why am I selling my Oil companies shares?

I started to play with the stock market when I was about 9, intrigued by my father checking regularly its portfolio. Internet didn't exist at that time, so I had to wait for the newspaper the following day to check how "my Ski Rossignols" (my first shares) were performing. Since then I have played a lot, sometimes cleverly or not, loosing or making money. To follow this well known advice "never put your eggs in the same basket" I kept buying "safer shares" for my saving from highly trusted companies: Oil & Gas companies.

I now frequently wonder when is the right time to withdraw all my money from those shares, although I have started this process a long time ago. I have now been working in the Oil and Gas industry for nearly 10 years and I know bp and Shell particularly well. Those companies for example look solid, generating lots of cashflow, but the environment is more and more difficult and they are moving into a troubling and uncertain future. It seems more and more difficult for those companies to replace their reserves and secure a healthy business in the future. Furthermore the competition is growing and much more smaller companies want to have their shares in the new field developments.

 

The bp share over the last 5 years...despite oil price raising from $30/bbl to $140/bbl

- Oil is more and more difficult to find and is located almost exclusively in remote and hostile locations, or in political instable countries
- Producing countries want a bigger slice of the Hydrocarbon cake: they don't even hesitate to put huge pressures on the super-majors to renegotiate the existing contracts (like shell experienced with Russia in the Sakhalin project) and the new contracts that those companies sign today are far less favorable that they used to be. Most of the time their profit will be capped so they won't really benefit directly from a high oil price
- Competition is increasing especially from the national oil companies trying to expand aggressively their business outside their country of origin. Those companies have acquired the right expertise and compete now against the majors. Those companies like Statoil, Petrobras, Aramco are relatively unknown from the public but start to be big players. Energy suppliers like EDF or British Gas want to secure their portfolio and are now involved in the Upstream Business (extraction) too. Competition is more and more intense to get access to new fields
- An Oil & Gas company could be compared to a big bank, that takes huge (managed) risks to generate huge profits. Those companies have experts to advise where oil could be located, how to minimize the uncertainty and how to best develop the project. Few of them have a technological advantage that makes the difference, as the technology is often owned by the services companies.
- Expertise: The market is very difficult at the moment. The Oil and Gas industry tends to be more a contractors universe. Employees are not necessarily staff, but might stay in the company or even in the same job for 20 years. They are paid on a daily basis, making significantly more money that a staff, less some benefits. Job security for contractors is almost a given as resources are limited in this industry. If one company offers a better deal, or at the end of a project, the 'skill' might easily go to another major or another project with one week notice and the expertise and experience is lost.
- Technology: a tiny percentage of their profit is invested into R&D. Oil companies would prefer small partnerships with universities or let the services companies to develop their R&D. Today few companies own a particularly advanced technology that could make the difference when a contract is to be awarded by a producing country.
As a result reserves are not only more difficult to renew (often less than 100%) but the expertise asset might also be volatile. This is why I believe that in the long term the capitalization would not necessarily grow and the share price drop

 

So what are their advantage today?
- Cash: it is more and more expensive to develop projects, and it requires huge investments that a company or a state cannot even take on its own. They form JV's and go in Partnership to reduce their risk. This cash is needed for frontier projects, difficult to manage, requiring huge investments. Small profitable projects are frequently given to national companies or to small operators like the one emerging in the north sea (Apache, Talisman, Venture, OilExco...) when the majors don't want to invest in depleted fields to extract the last barrels.
- Project management: in theory the super-majors can run mega projects efficiently or have the structure in place to support those projects. They also can rely on past experience and lessons learnt from previous projects.

Hydrocarbon is a finite reserve: The use of fossil fuels will, sooner or later, be constrained by their availability and very possibly by their effect on the climate. Oil companies will need to find alternative source of energies to secure their business in the future. They all try to find their own way to generate energy in the future, but never in a structured way. Recently the CEO of Total admitted that Total would invest in the nuclear industry. A big jump. Some companies are progressing very (too?) slowly in developing renewables (wind, solar, biofuel): not in the big scale though, much more to put one step into it (like Shell refusing to invest in the London Array project, planned to be the world’s biggest offshore wind farm). Difficult to say today which company is having an advantage: is this new technology viable, can the skills be easily transferred?

Today everything seems fine: oil price is high and in the long term will stay high, profits will be huge, new project more and more expensive and reserve more difficult to secure, oil more difficult to produce and to evacuate. Share price is not fantastic though. What about tomorrow when all those uncertainties will be more apparent?

 

How to make money from electricity in France ?

  

How to make earn cash on the side?, 10 ways to make extra money, "10 pistes pour arrondir ses fins de mois"...many articles in France and in British newspapers last week covered the same subject. That is what people want and need to read for the moment. French and British newspapers probably get inspired by each other.

On both sides of the channel placing an advert on a car, going to car boot sale (vide grenier in French), renting a room in their home or doing online surveys were seen as a good idea to make this extra cash.

In the UK people would be encouraged to make their child a model, let a film crew in or review music. In France people were encouraged to offer their service (baby sitting, gardening assistance, DIY assistance), ad hoc work for products during promotional campaigns in supermarkets or running a blog.

 

 

There is however something that the French can offer that the British can't. Selling electricity !

Britain has the ambition to generate 12 % of its electricity from renewables energies by 2020. Is it another number thrown in the air or based on real serious studies with an action plan to accompany this target? I am convinced that to reach such an ambitious target households should contribute largely and be encouraged to do so. If you travel through Austria or South of Germany  you would be surprised to see that almost every single house (or at least a great proportion of those) have Hot Water solar panels installed on their roof.

What is the incentive to install renewables systems in the UK? Not that great, although the UK has a huge potential for wind turbine installation. I extensively look at it two years ago where I was relatively close to install a wind turbine in my Scottish home. I gave up, not only because the grants were not good enough but also because the planning permission promised to be hurdle. I France I would have done it straight away.

- By law EDF (Electricity de France) must buy the electricity that French households produce and don't use at an advantageous rate. 8.38 cents per kWh for 15 years if generated by a wind turbine and between 30 and 55 cents per kW under a 20 year contract if generated by photovoltaic solar panels (depending whether the panels are integrated within the property) .

For info households pay EdF  between 0.07 and 0.11 Euros per kWh (off peak / peak). It means that French people could sell their electricity to EdF 7 times more that they buy to EDF. In comparison in the UK Many energy supply companies offer buy back schemes but would buy it for significantly less than their own selling price.

- Grants are available in France and in the UK. In France a 50% tax relief is applied on the construction cost, if installed in the main home. In Scotland grants are available for solar water heating, solar photovoltaic, solar thermal space heating, small scale wind and hydro systems, ground source heat pumps and biomass. However Funding for householders is set at 30% of the installed cost up to £4,000. In England, Wales and Northern Ireland grants are offered for £1,000 per kW installed up to a maximum of £5,000.

Conclusion: it is clearly going to the right direction in the UK but I doubt that the available grants are important enough to convince people to invest. They want to be convinced that they will benefit from their investment themselves. Most of the time a solar installation is paid back after at least 10 years. In comparison the average time people stay in their home before moving again is 7 years.

 

 

The nuclear industry boom to come

Yesterday I visited the AREVA website, looking at job offers for a friend of mine. Thousands of offers were available, I have just never seen that in France. Areva, one of the worlwide leading specialist in the nuclear industry, is heavily recruting. Why? Just because all those countries like the UK or Germany who decided years (or just months) ago to give up their nuclear programmes are coming back into it. They have actually no choice. Energy consumption is rising in every country, and oil and gas prices make governments realise that it is urgent to find alternative ways of energy production. Furthermore the world is running out of Oil and Gas, geopolitical tensions in some oil producing countries make the supply a potential problem and the French model (80% of the electricity generated from nuclear plants) is something that the other countries would like to copy. Renewables and Nuclear Plants are those only alternatives. Decades are needed to build a nuclear plant, which itself would last 20 or 25 years. In anticipation with this raising need, Nuclear specialists are hiring more and more people.

Renewables energies will gradually build up but not at a stage where a country can rely exclusively on this form of energy. The world will gradually switch from oil and gas, because the supply will once be limited and terminated. This will be a gradual process and it has started now. We have started move to green cars instead of massive Four Wheel drive (even GM stopped the production of its famous Hammer and decided to focus in building economical cars), we will have a wind turbine and solar panel at home and change our habits to save energy. At the same time energy will be generated differently. Switching from one energy to another has always been a smooth process. Wood to coal, coal to oil and oil to gas. All those form of enery coexisted in the past, one replacing gradually the previous one. It will be the same will oil price: don't expect the "worldwide oil tank" to be empty tomorrow and people panicking. We will all have time to adapt. This Areva recruitment programm is just the perfect example.