RSM's Andrew Forsyth, Tom Faichnie and Kevin Lamb join a panel of experts to discuss the plight of the UK oil and gas industry and what measures the sector can take to help itself.

1. OIL AND GAS
38 / CA MAGAZINE / ICAS.COM / MAY 2016
INCONVERSATION
HE oil and gas industry
is used to the cycle of
boom and bust, driven by
global commodity price
movements, but the current downturn
is biting deeper and longer than most.
How is this affecting the industry, in
the UK and beyond?
To answer this question The CA
magazine, with leading professional
advisers RSM, brought together a
panel of industry experts in Aberdeen
to consider where we are and the
likely prospects for oil and gas.
Chairing the discussion was
Andrew Forsyth, partner in charge
at RSM’s Aberdeen office. He asked:
“How does the UK’s oil and gas sector
stand right now?”
Louise Wood, managing director
of manpower services business
Prodrill, said: “Most businesses are
struggling and SME businesses have
been particularly hard hit. Many
supply chain businesses are already
working on open book contracts
or cost plus contracts, so … are
finding it difficult to make further,
innovative savings.”
Tony Dinozzi, head of M&A with
international oil and gas services
business Wood Group, said the
company’s business had been affected
worldwide. He said: “We took out
$148m in costs last year and we will
take out more this year. It is not going
to get easier any time soon.”
That said, he added that Wood
Group had diversified its offering and
was continuing to make acquisitions.
But are the UK industry’s challenges
all due to global factors? Charlie
Parker, finance director with the John
Lawrie Group, said: “The cost base in
the North Sea is far too high. If we don’t
correct that, there isn’t going to be a
future for the industry.”
Bob Ruddiman, head of global
energy with international law firm
Pinsent Masons, agreed. He said: “The
industry believed its own rhetoric.
Capex was up to around £13bn
annually and that scale sounded great,
but nobody was asking ‘what do you
get for £13bn these days?’”
He noted that people in the industry
had not looked carefully enough at
how other industries had managed to
drive down costs.
Louise Wood commented:
“Everything is gold-plated in the oil
and gas sector and we need to find a
way to accept silver and bronze.”
Jenny Junnier, group financial
controller with Centurion Group and
chair of the Aberdeen cross industry
support network (AXIS), agreed that
cost reduction has become a priority.
She said: “So-called ‘lean process’
A panel of experts
discuss the plight
of the UK oil and
gas industry and
what measures
the sector can
take to help itself
T
IN ASSOCIATION WITH

2. MAY 2016 / CA MAGAZINE / ICAS.COM / 39
is becoming a big issue for the
industry now.”
The panel agreed that this is a
different kind of recession, longer and
deeper, and with new factors affecting
the global supply of oil, particularly
the shale gas sector in the US and the
Saudis’ decision not to cut back on
their own production.
Ryan Strachan, CFO with services
business Spex Group, noted also:
“The implications for the North Sea
are different now compared with 30
years ago. It’s now a declining, mature
basin, and it is caught in a squeeze
over which we have no control.”
As Charlie Parker pointed out,
however, the UK oil and gas industry
remains a centre of excellence and
investment in technology could
help to reduce its costs, and make it
more competitive.
Mike Sibson, who leads growth
finance organisation the Business
“The implications for the
North Sea are different now.
It’s now a declining, mature
basin, and it is caught in
a squeeze over which we
have no control”
Ryan Strachan
IN ASSOCIATION WITH
ANDREWFORSYTHCA
RSM (Chair)
JOHNBREBNER
Clydesdale Bank
TONYDINOZZICA
Wood Group
TOMFAICHNIECA
RSM
JENNYJUNNIERCA
Centurion Group
WENDYKEENAN
DNB Bank ASA
KEVINLAMBCA
RSM
CHRISLLOYD
MSIS
CHARLIEPARKERCA
John Lawrie Group
BOBRUDDIMAN
Pinsent Masons
MIKESIBSON
Business Growth Fund
RYANSTRACHANCA
Spex Group
DAVEWALKER
OilMac
LOUISEWOOD
Prodrill Energy Solutions
THE PANEL

3. 40 / CA MAGAZINE / ICAS.COM / MAY 2016
OIL AND GAS
Growth Fund’s Aberdeen office, said
his organisation had invested in oil and
gas technology businesses, in Scotland
and the south of England. He said that
it was proving easier to get a hearing
for new technology that offered the
prospect of reducing costs: “Now is
quite a good time to be investing in
technology businesses.”
Dave Walker, finance director with
OilMac, said the pressure on operators
to cut costs could create openings for
smaller companies such as his own:
“One of the businesses we’re involved
with, who normally put business
through much bigger contractors, talked
to us, because we were offering much
better value. Our proposition delivers
value that is not currently offered from
alternative solutions, the current cost/
cash focus in the industry has opened
conversations with businesses that
historically did not deal with OilMac.”
Could internationalisation be the
answer? Andrew Forsyth said: “Of our
clients, the ones who are doing well
are those who are able to take up
overseas opportunities.”
Wendy Keenan, head of the Aberdeen
office of DNB Bank ASA – Norway’s
largest financial services group, agreed:
“You have to be able to diversify…
without losing your corporate identity.”
But Tony Dinozzi said:
“Internationalisation in itself is not
going to solve the problem, because
it’s a global problem, with the exception,
perhaps, of the Middle East.”
Instead, he said, diversification
into other industries provided the
best hedge.
Andrew Forsyth said the prospects
were not all bleak for the UK industry:
“We’ve got a scarce resource which is
still in plentiful supply, albeit the price
is low right now; and we’ve got a huge
potential for decommissioning.”
There is still a question over the
timing of decommissioning, however,
and whether the UK has the required
capability.
Charlie Parker, whose business has
been involved in decommissioning for
a number of years, said: “We need some
clarity on what’s going to happen. The
government needs to spell out what’s
going to have to come out of the North
Sea and what’s going to stay.”
Bob Ruddiman commented:
“Successive governments have kicked
this down the road, as the operators
have done.”
Ruddiman added that the industry
“This is a time for
entrepreneurs…
this is not a time
for guys who just
want to do things
the same way
they’ve always
been done before”
Tony Dinozzi
IN ASSOCIATION WITH
should not expect the regulator, the Oil
and Gas Authority, to solve the problem
by itself.
The panel also discussed whether the
pressures on the sector are leading to an
increase in M&A transactions.
Tom Faichnie, corporate finance
partner with RSM in Aberdeen,
said: “We’re as busy as we’ve ever
been on deals, buy-side and sell-side.
People that were thinking about selling,
two or three years ago, have decided
to press the button now. These aren’t
distressed companies, they are all solid
trading companies.”
It was noted that, overall, banks have
been very supportive of oil and gas
businesses in the past 18 months but
cash-flow pressures over the rest of this
year could lead to restructuring deals or
the sale of distressed assets.
Kevin Lamb, restructuring director
Clockwise, from top
left: Louise Wood,
Rob Ruddiman
and John Brebner;
Chris Lloyd, Andrew
Forsyth, Dave
Walker, Wendy
Keenan and Mike
Sibson; Kevin Lamb,
Robert Outram
and Louise Wood;
Andrew Forsyth and
Wendy Keenan

4. MAY 2016 / CA MAGAZINE / ICAS.COM / 41
with RSM, said: “The danger is
that everyone waits for a bargain. If
you wait until the point of insolvency,
the job of turning the business around
gets a lot harder. There are a lot of
businesses that are not seeking advice
early enough.”
John Brebner, regional head of
specialist and acquisition finance
for Clydesdale Bank in Aberdeen,
said: “There is bound to be some
consolidation, and there will be winners
out of that. There are some businesses
that are doing really well, but it’s a
struggle for quite a few.”
Wendy Keenan noted that banks are
currently taking different strategies
to managing their clients in the
energy sector, from relationships
being retained and dealt with locally
to be handled from a more central
restructuring team.
IN ASSOCIATION WITH
John Lawrie’s Charlie Parker (left)
and Wood Group’s Tony Dinozzi
The panel also discussed the
prospects for recovery in the oil price.
The panel’s straw poll of predictions
suggested the price this time next
year could be anything between $50
and $100, with the consensus at just
above $60.
Chris Lloyd chief executive of
environmental services business
MSIS, operating in Scotland, the
Middle East and Nigeria, commented:
“The only thing we know from history
is that the oil price goes down and
then it comes back up again, and it
will probably come back up when
you least expect it.”
The panel agreed these are testing
times. As Tony Dinozzi put it: “This is a
time for entrepreneurs… this is not
a time for guys who just want to do
things the same way they’ve always
been done before.”