Aberdeen-2
 

"With the oil industry on the up again - in large part because they have been subsidised through the down-turn by removing all requirement for them to pay tax -"

How wrong can you get?

The N Sea oil business is in catastrophic decline -still layoffs and thousands of jobs gone .......... and they don't pay tax because they aren't making any money for God's sake

BP's CEO stated late last year that they are targeting producing UK oil for less than $12 per barrel. They are currently producing for $15 per barrel, selling it for over $50 and paying no net UK corporate taxes. They are in the process of doubling their UK output according to their CEO. Shell recently paid the biggest dividend in corporate history and is paying no net corporate taxes in the UK. The Scottish Government has recently wound up its oil jobs taskforce as the industry has turned the corner. UK oil and gas output was recently forecast to be 1.9 million barrels per day by the end of next year against 0.9 million barrels per day a couple of years ago as a result of new fields coming on stream and old fields completing their upgrades. To put these figures into perspective, at the peak in the 90s, UK oil production maxed at just over 2.8 million barrels per day and the price at the time ranged between $10 and $20 per barrel. Your information is somewhat out of date Harry.

The reason for the downturn in jobs from 2014 was partly to do with falling oil prices but significantly because very generous tax incentives in the preceeding few years were slashed. These tax incentives led to record levels of investment (which are now nearing production) and a jobs bonanza but huge numbers of jobs were lost when the incentives were cut. After the massive job cuts in 2014, taxes have since been slashed again.

One of the biggest problems that the UK's privatised oil industry has suffered from in the last forty years is a hugely unstable tax regime which creates boom and bust situations. Norways's substantially state owned industry doesn't suffer from the same issue and enjoys far more stability.

Harry, part of the problem with people's perception of the state of the oil and gas industry in the UK is that the UK mainstream media tends to give very little prominence to good news and lots of prominent coverage to bad news. More balanced coverage is provided in company accounts, company press releases and industry / investment websites.

Here are some examples of recent stories that have received little attention in the UK mainstream media;

U.K. North Sea Oil Field Startups Surge to 10-Year High

BP Chief says North Sea Costs are $15 per Barrel

Hurricane Energy sweeps towards first oil, confirms final investment decision

Total starts production at Edradour & Glenlivet fields, West of Shetland
That's not to say that everything in the North Sea is rosy but the situation is not as bad as many people have been led to believe.

Ouch! Not a phrase you see every day :ok:

Is $15 the marginal cost of pumping oil from a field whose upfront costs have written off, or does it include the cost of searching for, appraising, and bringing to production new fields?

The costs of the new fields were written off against tax as they were incurred. They were also included in the costs of production as they were incurred.

The extremely generous tax allowances in 2012-14 resulted in record levels of investment. Many new fields were given the go-ahead and many existing fields reduced or stopped production in order for their infrastructure to be upgraded. The temporary tax breaks also accelerated decommissioning of old infrastructure.

The tax breaks for investments that were commenced during 2012-14 continue until the related works are completed. These new and upgraded fields are beginning to come on stream and most of the rest will do so over the next couple of years. Meanwhile, the costs of these investments has tailed off significantly as fields near, and reach, production.

The net effect of the massive tax breaks between 2012 and 2014 was to cause production to temporarily fall significantly. The record high investment levels and the reduced production rate meant that these costs had to be spread across a lower volume of output. The result, inevitably, was that the cost per barrel rose significantly and tax take collapsed despite the oil price being circa $100 per barrel.

As the new and upgraded fields come on stream, production is forecast to double. Meanwhile, investment in new fields has fallen significantly since 2014. The much lower costs of investment will thus be spread across a greatly increased volume of production so the cost per barrel will drop by about 60% or more between 2014 and 2018.

Boom and bust in the UK oil industry is partly caused by volatile prices but a more significant factor is a volatile tax and incentive regime. In 2014, the tax breaks were cut, the oil price fell and the industry was thus hit by a double whammy. New investments were severely curtailed just as the ones that were underway were beginning to tail off. Huge numbers of jobs were lost as a result. Westminster was very slow to react to the changed circumstances.

In the 2016 budget, Petroleum Revenue tax (the tax on extraction) was effectively abolished. The industry still has to pay corporation tax but that is one of the easiest taxes in the UK to legally avoid as evidenced by countless companies. Paying taxes in the UK is now, to all intents and purposes, entirely optional for any individual or business that can afford the best tax advisors and lawyers.

The current situation is that BP is in the process of doubling its UK output, the oil price is over $50 per barrel, it is producing UK oil for $15 per barrel and is targeting a production cost of less than $12 per barrel while currently paying no net UK corporate taxes.

Some very well informed statements on the current state of the oil industry however the reality for a lot of companies on how the 'new norm' operates is very different.

A lot of travel budgets have been hacked back to zero, even domestic flights need approval from higher ups often in the US and video conferencing has to be looked at before travel is approved so many meetings simply just don't happen.

I, and many others used to think nothing of jumping on an EZE down the east coast for £450 a shot on a weekly basis and if my company have stopped that (a fairly large support company) then I suspect most others have as well. We have even started doing UAV site inspections (that used to be 10 or so guys travelling from all over) that get real time relayed back to surveyors in Aberdeen and satellite offices.

It now becomes the new norm that travelling is much less accepted than it was.

The FlyBe/EZE tie up kind of signifies to me that the halcyon days of business travel from ABZ are gone for the minute.

That was my thoughts. If the the price of production has dropped with further gains targeted, these "efficiencies" have to be found somewhere. I would think the overall profitability of the supply chain will have taken a battering. Can't see it being great for Eastern or other OAG type business.

Sorry guys - the majors are all exiting the UK N Sea - selling out to the small guys if they can. The size of discoveries continues to fall. Major pieces of infrastructure are being decomissioned. No young people are joining the business. Costs are coming down but not fast enough.

The N Sea is up against the US shale guys who have cut their costs dramatically over the last couple of years and who can react very rapidly to any change in the oil price - far faster than the N Sea.

If BP are targetting $ 12 a barrel a lot of jobs will have to go and the contracting business will be wiped out - or gutted - other costs have stayed the same and that means the contractors are going to get 20-30% of what they were earning 3 years ago... go figure on what that means for income, jobs and careers.............

Both sides of this argument are correct; the industry is in catastrophic decline and oil company profits are recovering*.

*Partly as a result of taking actions that do not benefit allied industries such as air travel...

Edit:

Also, the government is not benevolent when it comes to North Sea tax revenue. They made the changes because they didn't want negative revenue from the North Sea again!!!

Digressing somewhat but someone mentioned no young people coming into the industry.

This is one of the saddest stories of the downturn. Apprenticeships were one of the first things to go ('headcount reducers' should be ashamed of this) as were a lot of our younger staff and it's the same across the board.

Someone was telling me that in Sept 2016 not a single oil company interviewed oil patch MSc. graduates at Imperial College in London........................... breaking a 50+ year run

most have gone into Financial Services I was told.

A tech issue with this morning's Paris inbound:

https://www.pressandjournal.co.uk/ne...burgh-airport/

Looks like so far at least the RYR flights t/f ABZ are unaffected by their current troubles.

Loganair are feeling quite bullish now they are flying solo:
https://www.pressandjournal.co.uk/fp...r-flybe-split/

Finally for Harry & others, here's some oil news:
https://www.pressandjournal.co.uk/bu...sity-research/
10 years left. Apparently. NS Oil has been running out for the last 30yrs... or will last another century, depending on who you are listening to. Gimme a break. :rolleyes:

Ever since the McCrone Report was produced in the early 1970s (then classified as a state secret for over thirty years) the oil has been due to run out in ten years. Forties was only "expected" to last for about ten years back then but, nearly fifty years after it was discovered, its current operator expects it to last another forty years. All oil fields suffer from diminishing production rates as initial pressures drop. Operators need to keep investing in them to keep production levels up. Techniques include drilling additional wells and injecting fluids into the reservoir to force the oil out. If no further investments are made then the field will run out sooner rather than later.

When fields are first discovered, estimates of economically recoverable oil are sometimes as low as 10% of the oil originally in place. The oil originally in place estimates are often very low too. It's not unusual for the initial estimates of oil originally in place to increase by several orders of magnitude. The figures for the Shiehallion Field, Forties Field and Greater Clair area, for example, have been massively increased since they were first discovered. The industry is notoriously conservative in estimating recoverable reserves as Forties demonstrates. With the latest extraction techniques, 80% or more of the oil originally in place can sometimes be recovered. The bigger the reservoir, the more economic it becomes to maximise recovery of the oil initially in place.

The Greater Clair area and Greater Lancaster contain far more oil originally in place than Forties and Brent did at their equivalent stage of development. Part of the reason that BP's cost of production is heading below $12 per barrel is because of the Schiehallion and adjacent fields coming back on-screen post-upgrade and the latest phase of the Clair field, Clair Ridge, coming on stream next year.

Greater Lancaster is unlikely to reach full field development until the mid 2020s unless a farm-out to a major oil company is achieved soon. The section of the Rona Ridge between Clair and Lancaster is about to be explored (by Shell, I think) and expectations are high that it will resemble Clair and Lancaster and thus contain enormous reserves by UK standards. A field west of Lewis was discovered some time ago that contains huge amounts of oil but the absence of infrastructure on Lewis, the distance to Shetland and the much easier pickings close to Shetland means that it's unlikely to be developed for a very long time. There are plenty more examples of Scotland's oil potential but none of these are included in industry estimates because they haven't been adequately assessed.

The research referenced in the P&J is, at best, very misleading. We have to ask who funded it and what their motivation was. We have a saying in Scotland; "He who pays the piper calls the tunes". By talking down the future potential, oil companies can keep downwards pressure on the supply chain costs and Westminster can continue the tactics that began with the McCrone Report. This report could also be used to justify fracking.

According to its website;

I've just read the source report. Here is the basis for the assertion;

This completely ignores the fact that the industry forecasts that production will double by the end of next year. As I said in my initial assessment, the report is, at best, misleading. I would now go further and say that it ignores recent developments and instead just extrapolates from historic data.

But thats what Reservoir Engineer s do.... short term production boosts accelerate production not increase reserves. Long term production will fall, its a matter of how long you can stretch it.

Sadly the UK has faired evry badly from N Sea oil compared to Norway who has squirrelled away trillions in Sovereign wealth and infrastructure investments. here we just got screwed over by lazy and corrupt government, red and blue, who let the oil companies avoid taxes and after many years have left the UK with very little to show for its oil boom.

Sad but pretty much the norm for us, be nice to get sovereignty back from Brussels so we can use that model on our remaining industries and commercial sectors

Yeah get sovereignty back... so we can get screwed some more by red white and blue and all the other colours that have ever held power over us. :bored:

Incidentally the Norwegian sovereign wealth fund story was squirreled away in a very small snippet deep in the pages of my beloved local rag. Obviously hoping we didn't see it, as if we weren't aware!

Anyway, west of Shetland does appear to be gaining interest, especially along the Rona Ridge. Have Hurricane hit the jackpot? Only time will tell if the initial excitement is well-founded. I see the FPSO Aoki Mizu is being renovated in Dubai (or is about to be), to be stationed on the Lancaster discovery some time 2018/9.

As you say Porrohman, kind of flies in the face of the 10yr forecast, albeit 'N.Sea' is also these days regarded as a 'catch-all' phrase for the entire UKCS, including the Atlantic margin such as west of Shetland.

Aberdeen-2? Wow that’s like 10 years of ABZ history gone just like that!

Air Baltic look like they will be returning next year albeit at twice weekly, but after things ended up last time I guess this has to be taken somewhat positively.

That's good news Capt D, I think 2w is probably about right in my view for RIX. Any idea of the a/c type for S18?

Down as B733/B735 again

Industry body Oil & Gas UK has also rubbished the reports about the imminent demise of the UK industry;

Source; https://oilandgasuk.co.uk/statement-...and-gas-study/

It'll be interesting to see whether the mainstream media will give this statement as much prominence as the report claiming that oil would run out in ten years got. I won't hold my breath.

FlyBE/Eastern
 

https://www.eveningexpress.co.uk/fp/...-city-airport/

BE flight codes to be added to T3 flights - not sure if that was already known or new info.

Mmmmmm Eastern Airways website gone from end of October. Aircraft Painted in Flybe Colours could this be the end of Eastern Airways as they disappear into Flybe ?

Very unlikely I'd have thought, after all it didn't have this effect for either Loganair or Blue Islands so I wouldn't have thought there would be any different outcome for Eastern. I imagine the last thing BE want would be a myriad of E70/E145/E135/Saabs and Jetstreams to worry about.

Turnover turbulence
 

ABZ revenue down 13.8%, reflecting the downturn in the oil industry:

Kevin Scott: Contrasting fortunes for Scotland?s airports (From HeraldScotland)

Loganair 'claim first blood'
 

Loganair claims first blood in airline battle | Shetland News

LOGANAIR chief Jonathan Hinkles said his airline is performing better than Flybe on routes to and from Shetland - but he warned having two operators at Sumburgh Airport "isn't sustainable" at current passenger levels.

The battle between the rival airlines swapped the skies for Lerwick Town Hall on Thursday afternoon as representatives for both operators gave updates at the latest meeting of the Shetland external transport forum.

Hinkles revealed passenger figures for the two operators since they quit their franchise partnership and went head to head from 1 September, with his airline seemingly winning so far.

But figures showed that all of the planes were on average flying less than half full as thousands of seats went empty.

Hinkles said Loganair had nearly double the number of passengers than Flybe travelling to and from Sumburgh on their competing routes in the first three weeks of September, despite it having less seats available on its smaller Saab planes.

Flybe interim chief commercial officer Ronnie Matheson said the figures were in line with the airline's initial predictions as it builds on encouraging more people to travel to Shetland with lower fares, with future expansion possible.

Flybe - in conjunction with Eastern Airways - competes with Loganair on routes to Aberdeen, Edinburgh and Glasgow using a bigger, faster Embraer 170 jet on nine flights a day.

Hinkles told the forum that 6,176 people had used Loganair between 1 and 20 September, while 3,199 travelled with Flybe.

He added that Loganair had 12,690 seats on their routes and Flybe 13,684, meaning the former had an overall load of 49 per cent and the latter 23 per cent.

Hinkles' statistics also showed that Loganair had a market share of two thirds and Flybe had 34 per cent.

Loganair's performance this summer compared to last year was up on 2016, he said, while planned developments include adding defibrillators to aircraft and adding more overhead baggage space.

Hinkles also attacked Flybe's schedule over the upcoming festive period, with Loganair set to operate on every day Sumburgh Airport is open while Flybe is set to cut back on its Edinburgh and Aberdeen routes, for example.

He added that Loganair had evaluated using the Embraer 170 - taking over five years of weather data from Sumburgh - and concluded that it is three times more likely to "suffer serious delay or cancellation due to weather than the Saab 2000 on the same flight".

Hinkles concluded that "the market is not growing to sustain the extra services" but said "we are here to stay - and we will be here to stay".

To me, underlines the unsustainability of competition in the current climate, and of using jets on the LSI run.

23%. I can beat that!

Flew to LSI earlier on this month with a total of 6 pax on the E70.

Even worse than that, the LSI-GLA rotation after that had.... zero pax

Just had a look, and BE have cut their base fares again. £35 o/w, a far cry from a month ago!

So we're looking at a market of 10,000 pax in 20 days............... even if one airline gives up that's still only 70 - 78% which is probably just about break even

With 2 on the route they could both end up hurting badly

I don't know how anyone could add such a large aircraft to a lightly populated airport like Sumburgh, especially with another company already established with smaller unfilled aircraft.
Did they think that the oil companies would use it? There are good reasons why the oil companies use charter flights. They can regulate the forwarding of people to Shetland if weather conditions, or other delays, are causing them logistical problems. They can also get their home-bound crews out of Shetland whenever their chopper lands from offshore.
I'm going back a few years but I doubt if things have changed much. Many of the charters would not leave Aberdeen if the helicopters were not cleared to fly out to the platforms. There was only limited accommodation available so sending crews up there on spec could mean a lot of expensive flying up and down.

Upward trend continues...
 

... despite a continuing fall in helicopter passenger numbers - perhaps this is underlined following the recent stories re Bristow making engineering/pilot redundancies, and now reported today Babcock posting a loss.

Aberdeen International Airport traffic continues to rise - BBC News

Domestics +7.2%
International +3.3%
Helicopters -8.2%

Perhaps to bear in mind Sept 2017 would also have been inflated by Offshore Europe so perhaps the lukewarm growth also reflects the downturn with not as many delegates attending the conference this time.

Still, fixed-wing passenger increases are welcomed.

KLM Fk70
 

Last commercial sorties tomorrow I understand for the remaining KLM Fokker 70 fleet before they are retired. We are down to get PH-KZS.

Bit of an end of an era - ABZ has seen F27, 28, 50, 70, 100 through the years, with the likes of Air UK, KLM, NLM, SAS, Busybee etc.

I've always had the Fokkers visual.... :E

4 x KLM flights arrived in NWI this morning in trail. Assume it was F70s heading there for storage.

LOG/bmi codeshare
 

Loganair agrees code share with sister airline | The Shetland Times Ltd

Probably not the most surprising news in the world.

News? NEWS?

Clearly not much happening in Shetland thsi week....................

Looks like TUI have had second thoughts about their planned BOJ service.

Dropped, replaced with an additional PMI rotation meaning it will be 4x weekly next year. I did wonder if BOJ could sustain two operators - Balkan remain twice weekly as with previous years.

On a PMI related note it doesn’t look like TCX will return next year after their 6 week token run this year operated by Evelop (which strangely ended just as peak season started!)

I always found TCX rather strange. Never seemed to see them at ABZ except for the Oct school holidays at the end of the summer season when all of a sudden we would have a plethora of them. Then they'd disappear again.

TUI to base a B737-800 for next summer.

presumably this replaces ASL and will be part based with GLA?