Gordon’s ghost

This is bullshit:

David Cameron will fly to Aberdeen on Thursday to announce a £250m package to prop up the North Sea oil industry, the first stage of an infrastructure investment for the city.

The prime minister will promise a new “oil and gas technology centre” in Aberdeen to fund future research, including into innovative ways to extract oil and gas.

His visit comes as the North Sea struggles against slumping oil prices, which have left many of its companies facing big losses. The industry is seeking £3bn in funding.

The last 10 years has seen Aberdeen’s wealth grow exponentially to the point that it became the most expensive city in the UK for house prices outside of London and a large portion of its residents became very wealthy with more than a few becoming staggeringly so.  A cruise past the offices of the oil and gas companies, the engineering companies, and service providers would show the car parks full of Audis, BMWs, Mercedes, Porsches, Jags, and Bentleys, enabled by soaring wages and full employment of those who work in the oil industry.

And now they need a bailout?  Fuck them.

They’ve made the same mistake as Gordon Brown when he infamously declared that he’d abolished boom-and-bust: he thought the good times were here to stay and he could go on spending money with gay abandon.

These companies that are now seeking £3bn in funding – which will be paid for in part by the taxation of British people working minimum wage jobs – ought to have managed their affairs taking into account the cyclical nature of the industry and implemented sensible reforms and sound business practices during the boom instead of feathering their own nests, bloating their office overheads, and lording it over everybody else as deeply unintelligent individuals found themselves presiding over multi-million dollar enterprises that their mate happened to own.

As I said: fuck them.

The companies should be allowed to go bust: directors, managers, and employees can remortgage their houses if they want to keep them going, but they shouldn’t be given a red cent of taxpayers’ money.  Inevitably some innocent workers will find themselves in financial strife while their former directors and managers retire into the sunset, but this is the regrettable and unavoidable consequence of people having believed the good times would never end and putting their faith in chancers and incompetents who ought to have been hounded out of the industry at the end of a long, sharp, pike.  If this lesson can get learned, and learned well, then it will be worth it.

“I hear ya.”

When engineers ignore economics, Part 375

One of the many side effects of the collapse in the oil price is a proliferation of nonsensical articles on the subject.  Today I stumbled across this in LinkedIn.

It must be hard for the world to have sympathy for an oil and gas industry that has been so extravagant and wasteful.

Why yes, it must be.

The Hubbert curve is a logistic model showing the theoretical depletion of worldwide resources over a two hundred year period.  It has a steep ramp up to peak production, followed by a drop and then, rapid decline.  The curve is symmetrical, or at least would be were it not for the many external influences such as regulation, political upheaval, changes in demand levels, enhanced recovery  and premature abandonment.

In other words, the curve is subject to change at any point due to unlimited external factors and therefore utterly useless save for an object over which academics can while away the hours pontificating.

This is peak theory.

Oh yes.  I wondered what happened to Peak Oil as the price tumbled.  Turns out it was down the back of the sofa.

It is not because of sudden enlightenment or visionary leadership that the industry has been forced to look at its inefficiencies but a matter of survival and the need to keep investors onside in a commodity war.

Companies need to make money to survive.  Who knew?

Cheap energy can stimulate growth but it also stimulates consumption and waste.

Why is consumption bad?  Maybe the pensioner shivering in her flat thinks being able to consume more is a good thing?  And who defines what constitutes wasted energy?  Presumably those paying the market rate for energy have half an idea what value they place on it, and optimise their consumption according to their own needs.  Why does this chap think he knows better than they?

As a global market we are squandering a finite resource by selling it below the intrinsic energy value.

Intrinsic energy value?  What pseudo-Marxist bullshit is this?  He’ll be espousing the labour theory of value next.  The value of oil is defined only by what somebody is willing to pay for it.  That’s it.  Nothing else.  Allowing pensioners to heat their homes more cheaply is not squandering a resource.

It threatens the development of ‘green’ energy because, the cheaper hydrocarbons are, the less viable the alternatives.

So the switch to “green” energy will make energy more expensive.  I’m glad that’s finally settled and we can put all the propaganda about magic windmills to bed.  But I’m yet to understand why expensive energy is better than cheap energy.  Is everyone that rich they can afford to pay the premium?  That’s not what I read in the papers.

Hubbert illustrates that rapid decline is inevitable and if we are not ready for it, it will lead to social and political upheaval, possibly war and most certainly, global energy poverty.

There is an oil oversupply driving the price through the floor so we should worry about a shortage which will usher in the three horsemen of the Apocalypse?  Okay.

If nuclear power is too dangerous and hydrocarbons are all bad, how do we power the vessels for maintaining offshore windfarms and tidal generators in the future?

The “if” in that sentence is doing an awful lot of work.

This brings us to a key point; the production of energy requires energy.  We need it for every stage of a project from concept, through to manufacture and on to installation-execution.   During the life of any development, production values follow its own ‘Hubbert’ curve, so at end of life the business case becomes more challenging as returns diminish.  If we are forced to abandon inventories and prematurely decommission the hardware, most of those resources will be lost to us forever.

You rarely hear stonemasons bewailing marble left behind in abandoned quarries, even as new ones are opened up.  There are good reasons for this.

If the energy required to re-establish the infrastructure outweighs the recoverable energy it can never be viable at any price. That is a net loss to the world.

He’s just described the Cornish tin mines.  Oddly, nobody cares about them.

Where are these most fundamental risks being prioritised? The answer is nowhere, with the traditional hierarchy of shareholders at the top, oil companies below and everything else disposable and only existing to serve their purpose.

Except most of the world’s hydrocarbon resources are not controlled by private oil companies answerable to shareholders but by governments, who really don’t give a shit.

Yet is it really acceptable to dismantle the industry, its knowledge base and abandon the people who work in it, to satisfy a global game high stakes poker?

Cry me a river.  The world’s population should shoulder the burdens of record oil prices indefinitely in order that a handful of people lucky enough to work in the industry can continue to reap the rewards?  You take the rough with the smooth, same as in any industry.

Can we really progress as a species like this?

Slimming down bloated oil companies by firing a few thousand diversity coordinators and financial compliance officers is not going to threaten humankind’s survival.  Nor is forcing managers to make timely decisions and shoulder responsibility occasionally.  But if you’re an Audi dealer in Aberdeen?  Then I agree.  That species is threatened.

There are lots of articles in the media predicting a return to higher oil prices; they are convincing theories about a low oil-price-triggered bounce in demand or reduction in supply.

I think he’s just discovered supply and demand curves.  The good news is he finds them convincing.

As much as we need a higher valuation on our precious resources, this is not the way we need to do it.

Ye Gods, we can’t just leave it to free markets and individual choices! There would be wastage, inefficiencies!  We need a panel of experts who can…wait, what?  What’s that? The Soviet Union ended in humiliating collapse?  When?  Nobody told me!

Increase in demand accelerates depletion.

Yes, oil is a finite resource, we get it.  But the stone age didn’t end because we ran out of stone.

As for supply, a high oil price that does not result from a political solution, means that we have either killed off sectors of our industry forever, or there is a military war in key producing regions.

Perhaps, but a high oil price is often a sign of stupid, dumbfuck political meddling in the industry in the form of taxes, regulations, local content legislation, nationalisation, outright theft…(cntd. page 87).

Regardless of the advancements we might make with exploration and production technology, it’s undeniable that one day there will be no more.

I repeat: the stone age didn’t end because we ran out of stone.

Yet in theory at least, what we do have control of is when that end-date might be and that is by optimising our efficiency in extraction and not leaving anything behind unnecessarily.

In theory.  Which assumes we ignore economics to concentrate only on extracting the maximum amount of oil regardless of cost.  Which probably won’t work out so well.  Or, if we’re going to consider costs, then the prevailing market rate is probably the one we should use.

The market share competition is a race to the bottom and the bigger issue is how we will possibly make the transition into alternatives if we force ourselves into global energy poverty.

The market share competition is a dick-waving exercise between Saudi Arabia and Iran, with various tin-pot kleptocracies doing their utmost to preserve the revenues on which their leaders’ personal lifestyles depend.  Short of invasion and occupation (which went oh so well in Iraq) I’m not sure there is much we can do about this.

We must make our remaining resources last and look to carbon capture methods and cleaner ways of using it; the alternative is to  burn it all before we learn how to keep the by-products out of the atmosphere.

We?  Who be that, then?

We must look at how to make the alternatives viable now, realising that the pay-off for that is in the future.

Yes, let’s make energy artificially expensive now in order to benefit future generations.  Many of whom won’t be born because their would-be parents died shivering in the dark.  If renewables were not commercially viable at $100+ per barrel, trying to make them so when oil is below $30 is a level of economic stupidity rivaled only by Nigerian fuel importation subsidies.

The question is whether we will be there with sufficiently mature technology to meet it, because to get there requires hydrocarbons.

Whatever the question, top-down meddling with the oil price is not the answer.  Ever.

Now a museum.  For good reasons.

Total Failure

It must be “Pick on Total Week” here at Chez Jake:

Total and Zarubezhneft have agreed to adjust their participation in the Kharyaga Production Sharing Agreement whereby Total will transfer a 20% interest together with operatorship to Zarubezhneft.

This is a big development: Kharyaga was the only producing development which Total operated in Russia.  Once this deal goes through, Total will no longer operate anywhere in the country.

“Russia remains a key country for the Group. Total has ambitious plans for the future through its established partnership with Novatek and the ongoing Yamal LNG project”, commented Arnaud Breuillac, President Total Exploration & Production.

A key country for the Group, only we’ve just surrendered our one operated asset?  Hmmm.  I’m not sure that a partnership with Novatek quite compensates. Total is supposed to be a major Western oil company, and the ability to operate difficult assets such as Kharyaga ought to be what differentiates them from non-operating investors.  Regarding Novatek, as I said before, I am of the opinion that Total’s position in Russia ought to be based on something a little more solid than an 18% stake in a company owned by somebody who probably owes his position to having once been Putin’s judo buddy.  What is Total’s role in the Novatek partnership?  Securing funding and supplying cash, probably.  Perhaps some technical assistance.  But once Yamal is built the Russians will figure that on the next development it is pretty easy to hire Technip, point to Yamal LNG, and say “povtoritye”.  Total might make money, but will they add value?

“This transfer represents a new stage in the life of Kharyaga. A more substantial role for Zarubezhneft alongside our continued involvement will allow us to extract maximum value from Kharyaga for many years to come.”

Now this statement is telling, but to see why you need to look at Total’s recent history on Kharyaga, which is hinted at here:

Asked about the report at an oil and gas conference in Paris later on Wednesday, Total’s Michael Borrell, head of Europe and Central Asia said:

“We’ve had significant difficulties with one of the principal contractors [in the project],” adding that the group was working on maintaining the field’s production levels and treating the gas produced so it could be sold.

“In those circumstances it’s normal for us to be talking to our partners about how we address those issues and that together with our partners we optimize the long-term value in an asset like that,” Borrell said.

Significant difficulties?  What difficulties?  Oh, these difficulties:

In February 2011, Total said that it signed a $400 million engineering, procurement and construction contract with Russia’s Globalstroi engineering to update its central oil processing centre under the third phase of the production expansion project.

However, the contractor has failed to perform.

The project referred to is the Kharyaga Phase 3 expansion.  I understand that this is the second (or perhaps third) attempt that Total has made at getting this project completed, and each time they have met with failure.  For a company that managed to get the initial Kharyaga development done in Yeltsin’s Russia, this is some drop-off in competency.  In other words, the reason for the sale is that Total has fucked up the expansion project so many times they have been forced to hand it over to their local partner to get the damned thing done.  It was all a bit too difficult for the French, it seems.

Following the tragic death of Total’s CEO Christophe de Margerie in a plane crash  in October 2014, I said:

[T]he Big Moustache’s enormous character made him genuinely popular among the Russian leadership and it is no certainty that his successor will make the same impact in a country where personal relations count for so much.  It could well turn out that much of Total’s commitment to Russia was down to de Margerie personally.  Having not been involved in E&P in Russia, the new CEO might find it a cold and difficult place to do business.

It seems that prediction has now come to pass.

I cannot see how this can be spun as anything other than a major setback for Total who, with Kharyaga and their involvement with Shtokhman, had such high hopes for Russia only a few years ago.  But it’s not just Russia.  Allow me to present a list of countries in which Total is not operating:


For an international oil company, these are pretty serious omissions from a global portfolio for two reasons.  Firstly, the USA, Canada, and Australia represent political stability, the producing nations which other majors use to offset their risky operations in places like Africa and South America.  Secondly, Kazakhstan, Brazil, and Russia represent three of the main regions for potential future development, the “new” areas into which the supermajors were hoping to go to boost their flagging reserve replacement rates.  I’m not convinced getting into stalemates in Uganda and doubling down in Nigeria and Angola is a strategy that will pay off in the long run.  Time will tell.

“That went well.”

Total Maintained

This might be encouraging for Total employees, but for their shareholders less so:

French energy company Total expects a drop in 2015 results but does not plan to cut jobs as peer BP has done to weather currently low oil prices, its chief executive said in a radio interview on Tuesday.

Patrick Pouyanne told Europe 1 that the group had the financial capacity to weather low oil prices.

Pouyanne said Total like its peers was being hit by the fall in crude prices and that the company expected its results to drop by 20 percent.

Asked if Total would cut jobs, Pouyanne said: “No. We are used to these cycles, and jobs cannot be the adjustable variable because I’ll need these workers when the price goes back up, and it will go back up someday. I don’t know when.”

Pouyanne said Total had decided instead to not replace all retiring staff and to hire fewer people.

As we discussed here, Total was already overstaffed to the tune of 40,000 employees in 2014 when the oil price averaged $85 per barrel and their profits had dropped by 70% since 2012.  If profits are taking another 20% hit, they’ll be coming in at $3.36bn for 2015 when they are released on February 11th.  Applying our little metric from before, and assuming there has been no change to the 100,307 headcount from 2014, this means each employee is adding $33,497 of value.  Impressive.

So while it’s all very well not cutting staff, one wonders what the 2016 figures are going to look like with oil now below $30 per barrel and looking to stay that way for quite some time.  Not good I suspect, particularly in relation to Total’s peers who have all been laying off thousands (save for ExxonMobil, who were running a lean operation to begin with).

I don’t buy the argument that this workforce will be needed when the price goes back up “someday”.  Sure, you keep hold of your technical staff and those with the experience which would be costly to replace when the upturn eventually comes.  But keeping everybody?  Come off it.

For a start, there will be people there who are 2-3 years off retiring.  So when the upturn comes these guys – having been sat around on the payroll picking their noses – will leave just as they are needed.  At the very least, there should have been a round of voluntary redundancies where they get rid of all those coming up to retirement and replace them with younger, fresher bodies from the layer below.

Secondly, given Total has added over 3,000 people to its payroll between 2012 and 2014, it’s highly likely that the ranks were swelled during the past decade of bumper oil prices, with a lot of them going into administrative and support service functions.  Are we to believe that an increase in the workforce during the boom years should not be offset by a reduction during the lean times?  If so, then what happens during the next boom?  They’ll recruit another ten thousand or so?  This upwards ratchet is a common feature of large bureaucratic organisations, but alas they are normally state departments and not commercial enterprises shouldering expectations of financial performance.

Thirdly, are we really to believe that the current number of workers and the combined skillset in Total is optimum for whatever shape the industry takes when it emerges from this slump in 2, 3, or 5 years?  They were woefully overstaffed even before the downturn.  I’m of the opinion the industry will look very different to the one we all knew and loved over the past 10 years, and a return to $100+ per barrel looks like a pipe-dream with $60-70 being the best we can hope for, not to mention the likelihood of a fundamental shift towards smaller, leaner projects with lower CAPEX subject to greater scrutiny from stakeholders and cash-strapped governments.  Is Total’s organisation – which is a remnant of the previous boom and now seemingly to remain untouched – really going to be well placed to perform on a par with its peers in the new-look industry?

I suspect the real reason the entire workforce is being retained is because job cuts are politically unacceptable in France, the unions are too strong, and Total lacks the managerial personnel to oversee a serious redundancy programme.  Better to just borrow some money and press on regardless.

“That was awfully nice of him!”

One less snout

Bloomberg reports of a Russian oligarch who has found himself ousted from Putin’s inner circle:

He was one of the most powerful men in Russia for a decade, an old pal of the president who oversaw a million workers and a rail network spanning 11 time zones.

But then Vladimir Yakunin was suddenly out, ending a career that included a stint as an intelligence officer at the United Nations in New York during the Cold War. Now Yakunin, 67, has some parting advice for the remaining members of what he dismissed as Putin’s “so-called inner circle”: know your place.

There’s a very simple reason for this, and such oustings were entirely predictable from when the Russian economy started tanking: the pie is getting smaller, and nobody wants to reduce their own share.  That means some will have to go without altogether.

“Budge up!”

Max Fordham: rent-seeking since 1966

A downside of writing about oil and gas affairs is being spammed by people who write articles about “energy”.  One such example received over the holidays was a link to the predictions for 2016 of somebody by the name of Max Fordham, a building engineer who “started his own practice in the spare bedroom of his Camden home” in 1966.  Good for him.  Let’s see what he thinks will happen in 2016.

1. Infrastructure-scale solutions to climate change

Governments will be forced to tackle the problems caused by climate change by introducing infrastructure-scale solutions. Hopefully these will give way to exciting examples of urban design, such as the $335 million scheme to upgrade Lower Manhattan’s storm defences.

Translation: taxpayers’ money will be hosed around as normal with priority given to those projects on which the label “Climate Change” can be somehow attached.  The upgrade of the Lower Manhattan storm defences is in response to hurricane Sandy: I suppose we’re expected to take it as given that climate change caused it.  As predictions go, “governments to spend more money” and “climate change” is hardly sticking one’s neck out.

2. A “Trip Advisor” for buildings

The development of a ‘Trip Advisor’ for buildings and building comfort. Users will be able to rate office, retail and hospitality buildings on a number of criteria such as temperature, daylight, acoustics and ventilation that will then be fed back into the building management systems for efficiency based on big data. Enabling consumer pressure to drive improved performance.

This one sounds like something a building services engineer would dream up without taking into account what human beings actually do in a building.  For a start, nobody outside a handful of weirdos is going to go to a retail outlet, interrupt their shopping, and start contemplating the temperature, lighting, acoustics, etc. and share their opinions with the building management in order to make the building more efficient.  Trip Advisor is a tool which helps people to choose a hotel based on criteria that really matters to the customer.  Nobody chooses where to do their shopping based on the acoustics and ventilation: they might complain it’s too hot or too cold when they get there, but it’s not something they’ll go online to check out beforehand.  And offices?  Set the thermostat at 22 degrees and see who complains (women mostly: they like to wear dresses, whereas men wear suits or trousers and jumpers).  The consumer pressure won’t materialise because they won’t give a shit.

3. More plants on buildings

The increased use of living roofs on commercial and domestic buildings, and an increased awareness of the role buildings can play in maintaining biodiversity.

Sorry, what?  Biodiversity? Are we going to transplant endangered species from the Amazon and stick them on the roofs of offices in Sunderland?  Plants in – or on – offices might look nice, but otherwise they serve no purpose whatsoever.  It’s not like wildlife is going to move in, is it?

4. Global harm tax on fossil fuels

The introduction of a global harm tax on both the extraction and use of fossil fuels which makes visible the damage caused by these sources of energy and also encourages the development of alternative forms of energy production.

So electricity, fuel, and heating is going to be made more expensive.  Marvellous for wealthy and successful business owners like Mr Fordham.  Not quite so exciting for the poor who will be left shivering in the dark.  And a global tax?  What’s the legal basis for that, then?  And who receives the revenues?

5. Population control

The need for action on global population growth will be addressed by ensuring universal access to contraception. This will provide positive impacts in terms of both economic growth and public health.

Translation: brown people are having too many babies.  I don’t know how many children Mr Fordham has, but you can bet your last dollar he doesn’t think they form part of the surplus.  Ironically, it isn’t condoms that the poor need to start having smaller families, it is 1) increased wealth and 2) reliable, cheap electricity.  Both things which a “global harm tax” on fossil fuels will make more difficult to achieve.

6. Wider awareness of carbon impact of construction

In design and client teams, we’ll see a wider appreciation and understanding of embodied energy and the total carbon impact of the construction process.

Translation: we’ll fill people’s heads with more jargon in the hope that, one way or another, it will increase our revenues.

7. In-building energy storage

The development of In-building energy storage systems or daily heat stores to spread the peak energy demand of a building over a day.

This hasn’t been done before 2016?!  What were those Economy-7 storage heaters in the 1980s, then?

8. Energy Performance Contracts become the norm

Energy Performance Contracts become expected for more new builds. Better prediction of actual energy consumption and then having to deliver on this in practise. It will put a much better focus on the way we design and the way we build.

Ah yes, just what British property market needs: yet more expensive, bureaucratic regulations which the eventual owners will have to cough up for.  Didn’t the Home Information Pack get scrapped?

9. Death of “tick box” sustainability

The death of BREEAM and ‘tick-box’ sustainability with a move to a more appropriate choice. We will see an even greater rise in the employment of sustainability matrices such as the one developed by Max Fordham.

So useless bureaucracy shouldn’t be scrapped, it should just be changed to one that favours our line of business.

10. Greater recognition of the impact buildings have on health

Comfort, health and well-being will become a much larger part of considerations when designing and building non-residential, commercial lettings.

Allowing fortunate office workers to see bare, unrendered concrete all around them, residents to enjoy 1970s-style flat-roofed rabbit hutches with community heating, and visitors to NHS facilities to marvel at bare chipboard.

In short, Fordham is your run-of-the-mill statist, authoritarian rent-seeker who has amassed a veritable fortune of taxpayers’ cash by preaching to governments from the environmental pulpit (naturally, his grubby mitts can be found all over the London Olympic 2012 facilities).  The world would have been better off if he’d stayed in his spare bedroom the past 50 years.

“No, we’ve not stuck you in the basement, this is how it’s supposed to look.”

Nations and Corporations: Parallel Decadence

It can sometimes be an interesting exercise to compare countries with corporations.  Not in the usual sense that dimwitted Social Justice Warriors do when they compare a company’s market capital (a stock) with a country’s GDP (a flow).  You might as well compare a lake with a river (and iif you’re a SJW, express concern that the Rio Grande is bigger than Crater Lake).  On this point, Tim Worstall explains all.

No, I’m thinking more along the lines of how an entity – be it a nation or a corporation – changes as it gets wealthier.  I have long subscribed to the view that, in the developed Western nations, we solved the major issues facing mankind several decades ago: infant mortality, hunger, disease, poverty (the genuine kind, not the SJW “relative poverty”), and deadly violence.  Nobody of my generation died of malnutrition, treatable disease, or sectarian violence outside of a (statistically) few extreme cases.  By historical standards, those who were born in the West after about 1960-70 were the wealthiest, safest, and most fortunate people ever to have lived.  Several factors contributed to this situation. The guns falling silent after WWII followed by a Cold War which thankfully never got hot was probably the most important.  The Western nations becoming wealthy was probably the second most important.

Wealth delivers incomparable benefits to a population.  The portion of monthly income required to adequately feed a family declines as food gets cheaper (being wealthy is not just about earning more: if the prices of goods and services go down relative to earnings, one is wealthier also).  This frees up money for other, secondary requirements such as better clothes, central heating, medicines, and labour-saving devices such as washing machines and cars.  If the monthly income allows a family to be fed, warm, and not exhausted through physical exertion, any surplus can be spent on things like education, healthier food, pension funds, and other things which we nowadays consider necessities but until recently were out of reach to most people in the West, and remain so for much of the developing world.  Once people are wealthy enough to have all these requirements taken care of, the surplus cash can be splashed around in iPhones, skiing holidays, cable packages, musical instruments, and other luxuries.

However, the surplus wealth does not just get spent on personal luxuries.  As a country gets wealthier, the government finds itself able to raise more in taxes and hence has more money to spend on things we all like, such as a functioning judiciary, a police force, and vaccination programmes.  But as the country gets wealthier still, the government is able to spend more and more (in absolute terms, leaving the relative expenditure alone for the sake of this argument), again on some things we all like but also on some things which some of us might not like – such as an Olympic Games, or subsidies for a theatre.

There are several ways a countries can get wealthy, but in the Western nations they have done so basically in two ways:

1. By producing goods and services which add value, the added value being proven by the fact that somebody has voluntarily parted with their money to purchase it.

2. By taking part in the globalised, diverse marketplace where comparative advantage has allowed customers access to astonishingly cheap (by historical standards) goods and services while those who produce said goods and services have also gotten wealthier at the same time.

As Westerners saw their collective wealth increase, they surrendered more of the surplus to governments who spent it on improving essential services but, increasingly, on luxuries which, historically, they have gone without.  The pre-WWII Western governments did not include departments for sport and culture and spend taxpayers’ money subsidising artists because there simply wasn’t the surplus wealth to pay for it: people were spending most of their income on feeding their children and putting clothes on their backs, and the meagre surplus they handed over in taxes was spent on things like defence of the realm and the salaries of those who ran the judiciary.  I’m simplifying here: I’m sure you could find examples of wasteful expenditure in every government going back to Roman times, and then some.  But you get my point.

The problem Western nations now have is twofold, and brought about by three successive generations of Westerners who have found themselves fully fed, clothed, housed, healthy, educated, and blessed with luxuries unseen by anyone else in history (one word to those who doubt this: dentistry).  Spoiled rotten, in other words.

1. Goods and services which until recently didn’t exist, and later were seen as luxuries, are now considered to be essential.  This is why you see people protesting about cuts to the sums that governments spend subsidising theatre groups, and why government cuts of any kind are opposed by huge swathes of the population.

2. An increasing percentage of the voting population do not understand how the wealth that pays for their historically high standard of living is generated.  The link between individuals and companies adding value in the provision of goods and services, and the money governments have to spend on luxuries via taxation of that added value, is poorly understood.

Having never seen wholesale malnutrition, destitution, and death, the populations of Western nations believe their standard of living is inevitable, as irrevocable as being born.  Fewer and fewer grasp the mechanism by which their standard of living is a result of a section of the population spending their time, efforts, and capital to produce something of value, something that people want to buy with their own money.  Therefore, the populations do not consider this when introducing and voting for policies which have a detrimental effect on the very mechanism which has afforded them the luxury of having the time and money to implement these policies in the first place.

A good example is renewable energy, so beloved of Western populations who vote in their droves for governments to spend more taxpayers’ money on windmills.  The availability of cheap, reliable energy – particularly electricity – to so many people is one of the most incredible technological achievements in human history, and has probably contributed more to the wealth and elevated living standards enjoyed by Western citizens than anything else.  That nobody of my generation, or those of my children, know what it’s like to sit shivering in the dark at home once the sun sets has led them to take for granted the enormous efforts that their forebears put into ensuring they did not have to.  They lead lives of such wealth and luxury that pontificating over a potential rise in global average temperatures is considered a more worthy and valuable activity than generating the electricity that powers their entire way of life, and without which most would almost certainly die within weeks.  They believe that taking money from people who add value providing essential things like reliable power – thus making it more expensive for consumers – and spending it on things like windmills (which don’t provide reliable power) results in a net positive outcome for society as a whole.

The West has therefore found itself using its incredible wealth to enact policies which will reduce that wealth, and if continued unchecked will end up – like Greece.  The Hellenic nation has managed to boot the can a bit further along the road, but eventually, if they intend to survive as a population and a country (and this applies equally to the clowns in other countries who keep bailing them out with their own taxpayers’ money), they will have to radically alter the way they structure themselves such that enough of their number are producing goods and services that people want to pay for.  Will they do it?  I don’t know.  But I do know that the continued existence of countries, and even entire populations, is not something which has historically been guaranteed.

So what’s this got to do with corporations? As companies get bigger and more profitable, more of the excess cash they generate gets ploughed back into the organisation in one form or the other.  Some of these are good, such as higher salaries, better facilities, more reliable equipment, etc.  But almost inevitably as companies get richer they increase their headcount, creating more and more positions which become increasingly removed from the activities which add value and generate the revenues.  Personnel management gets taken away from the departmental managers and handed to a new entity called HR.  Before too long there is an HR director on the board.  Procurement divisions are created which exist to ensure certain processes are followed seemingly in complete isolation of what is required when, where, and by whom.  Health and Safety departments are enlarged beyond those personnel required to stop people being killed or injured as they switch their focus to public relations and avoiding imaginary lawsuits.  Finance departments put a higher priority on simplifying their tax submissions than facilitating the work actually being carried out.  With enough time, even the managers of the front-line departments become unable to separate that which represents a direct cost from an overhead, and start making catastrophic decisions which appease the interests of the latter at the expense of the former.  The end point is a company which employs thousands of people as overheads supported by an ever-dwindling band of those who add saleable value, the revenues start to decline, and the company collapses under its own weight into bankruptcy.

I could name several companies which I think are closing in on this final point, whether they realise it or not.  It ought to be the duty of every director and manager from the CEO down to constantly remind all employees of the core business of the company which brings in the revenues, and have those employed directly in these activities recognised, supported, and rewarded.  Bizarrely, and surely to their eventual cost, it often appears to be a company’s overhead staff which are granted the ear of the senior management and lavished with the plushest offices and most handsome salaries, and those who deliver the goods and services treated the most poorly.

“Everything is under control.”

Modern thinking at Netflix

In having a lazy day surfing the ‘net I stumbled across this gem of an article written by one Patty McCord who was chief talent office at Netflix between 1998 to 2012.  It describes the management techniques employed by the CEO Reed Hastings, and the way in which they differed from those of other companies, across a period which saw Netflix grow from nothing to being one of the biggest media companies in the world.  Entertainment media is a lot different from oil and gas, but nevertheless there are universal aspects to management which apply to any industry.  In reading the article, it was easy to see think of counter examples which demonstrate how modern oil and gas management is failing so badly.

The best thing you can do for employees—a perk better than foosball or free sushi—is hire only “A” players to work alongside them. Excellent colleagues trump everything else.

This confirms what I said in this post: if you want to know if an employee is any good, ask their colleague not their manager.  Oil and gas companies tend to do the opposite to Netflix in this regard, judging an employee based on their compliance with the requirements and expectations of the hierarchy rather than their ability to deliver.  It is therefore extremely common to find yourself in a team with one or more utterly incompetent individuals whose failure to deliver puts your own tasks in jeopardy and derails the whole project.  I long ago gave up trying to address this issue through management, because they either don’t recognise the individual’s incompetence or refuse to do anything about it if they do.  Modern oil and gas managers simply don’t have the authority, and many don’t have the willingness, to deal with incompetent employees.  It is their colleagues who have to suffer – and ultimately the bottom line.

Over the years we learned that if we asked people to rely on logic and common sense instead of on formal policies, most of the time we would get better results, and at lower cost.

Logic and common sense are in desperately short supply in an oil and gas company.  I saw more logic and common sense in the army, and military absurdity inspired Catch-22.  Words would have failed Joseph Heller in a modern supermajor.

If you’re careful to hire people who will put the company’s interests first, who understand and support the desire for a high-performance workplace, 97% of your employees will do the right thing.

The problem the oil industry has is that its managers look after their own interests and nobody else’s.  As I said in this post, if a manager’s interests happen to be the same as those of the company at any given moment, it is merely a coincidence.  Company managers hire people who will make them look good and avoid making any decisions which might make them look bad.  The company’s interests are rarely considered.

Most companies spend endless time and money writing and enforcing HR policies to deal with problems the other 3% might cause.

I have an annoying habit of turning up in new assignments and asking why there is no company credit card issued to employees for business expenses.  The answer is always the same: it would get abused.  So rather than firing people who commit fraud on company credit cards, it is apparently better to get employees to shoulder the financial burden and employ hundreds of people to administer the claims.

Instead, we tried really hard to not hire those people, and we let them go if it turned out we’d made a hiring mistake.

Oil companies, by contrast, try really hard to employ people with egos and ambition that would make Napoleon Bonaparte look like a model of humility and are stuck with them for life.

Adultlike behavior means talking openly about issues with your boss, your colleagues, and your subordinates. It means recognizing that even in companies with reams of HR policies, those policies are frequently skirted as managers and their reports work out what makes sense on a case-by-case basis.

I must confess, I have generally found that HR policies are invoked to deny an employee whenever they want to improve something for themselves, or to prevent a useless employee from being fired.  But if management really want to shit all over somebody, the HR polices go out the window.

We also departed from a formal travel and expense policy and decided to simply require adultlike behavior there, too. The company’s expense policy is five words long: “Act in Netflix’s best interests.” In talking that through with employees, we said we expected them to spend company money frugally, as if it were their own. Eliminating a formal policy and forgoing expense account police shifted responsibility to frontline managers, where it belongs.

Compare and contrast.

But overall we found that expense accounts are another area where if you create a clear expectation of responsible behavior, most employees will comply.

Whereas in the oil business, employees are treated not only as children, but as children who HR think only want to shit on the living room carpet first chance they get.

Many years ago we eliminated formal reviews. We had held them for a while but came to realize they didn’t make sense—they were too ritualistic and too infrequent.

Compare and contrast.

So we asked managers and employees to have conversations about performance as an organic part of their work. In many functions—sales, engineering, product development—it’s fairly obvious how well people are doing.

It is staggering how many processes, procedures, and initiatives in an oil and gas company are substitutes for general, day-to-day, sound management practices.  Reporting being one such example I noted in my last post.

Building a bureaucracy and elaborate rituals around measuring performance usually doesn’t improve it.

No, it doesn’t.  Because the purpose of that bureaucracy and those rituals is not to improve anything but to keep people employed and managers handsomely remunerated for presiding over a mini-empire.  That’s why they should be dismantled, the personnel laid off, and the responsibility handed back to front-line managers.

Traditional corporate performance reviews are driven largely by fear of litigation. The theory is that if you want to get rid of someone, you need a paper trail documenting a history of poor achievement.

I am fully on board with the requirement to have a paper trail documenting a history of poor performance if a company wishes to fire somebody.  I have seen enough people booted from companies by spineless, useless senior managers who demanded unthinking obedience from their employees and rapidly dispatched anybody, no matter how talented, who behaved otherwise, and this ought to be either made very difficult or the requirement to be a sheep expressly laid out in the job description.  But there is no reason why a competent departmental manager cannot create such a paper trail for an underperforming employee, indeed I would think it was their duty to do so as a matter of course.

When we stopped doing formal performance reviews, we instituted informal 360-degree reviews.

Ah yes.  I remember these.

In my consulting work, I ask managers to imagine a documentary about what their team is accomplishing six months from now. What specific results do they see? How is the work different from what the team is doing today?

Heh.  The modern oil and gas manager is concerned only with what his employees are doing for the next six hours, and any future developments will come out of a clear blue sky either in the form of direct, detailed verbal instructions from his own hierarchy or with a very loud bang.  That’s not to say oil and gas managers are not experts at long-term planning, however.  To a man, they know exactly what their pension will be worth in 17 years time, how much equity will be on their “primary residence” back home by the time their kids reach university, when is the optimal time to re-enter a Western tax system, and how many arses they need to kiss between now and Christmas to get a good score on their appraisal.

Even if you’ve hired people who want to perform well, you need to clearly communicate how the company makes money and what behaviors will drive its success.

This is absolutely crucial, yet shockingly neglected in even medium-sized companies.  The mechanism by which the company makes money, and the role each department and individual plays in that, ought to be communicated and repeated over and over by the senior management and department heads until the employees themselves automatically think about it every time they come to make a decision or execute a task.  Yet as companies grow from start-ups into SMEs and then into large companies and eventually giant behemoths which the majors and EPC contractors have become, this message gets fainter and fainter until it is forgotten altogether, replaced with woolly soundbites such as “Beyond Energy” or “Deliver. Improve. Innovate”.  You then have an organisation which, like a bloated public service, believes it exists in its own right, is focused on processes and not outcomes, and largely fails to do what it was created to do with most employees not having the faintest idea how the money is generated to pay their salaries.  The behaviour of the laughably-named “support services” in an operator or engineering company would change drastically if they were forced to understand that they exist only to make the lives of those who generate the revenues easier.  Currently, large companies in the oil industry are run on the basis that those who generate the revenues are micromanaged by hundreds of procedures and processes drawn up by people who have no idea of where the money comes from.  With oil at $36 per barrel, CEOs might want to take a good, hard look at that.

If your company has a performance bonus plan, go up to a random employee and ask, “Do you know specifically what you should be doing right now to increase your bonus?” If he or she can’t answer, the HR team isn’t making things as clear as they need to be.

To be fair, this is as clear as anything in the oil business.  To increase your bonus you need to brown-nose your management, backstab your colleagues, and shit all over your subordinates.  Remarkably, everyone figures this out without the need of HR telling them.

The oil and gas industry could learn a lot from the likes of Netflix.  The chances of them actually doing so are practically nil.

“I have a feeling we’re going to last forever.”

Pointless reporting

There are few signs of an incompetent manager more prominent than a demand that his or her employees compile weekly reports.

First some clarifications.  If a project manager is responsible for ongoing works in several, geographically-spread locations across multiple time-zones, then regular reports containing pertinent information are useful.  I’m not talking about that.  Also, a single report containing a limited number of project KPIs (e.g. volume of concrete poured, manpower on site, etc.) compiled by one individual each week or month and handed to the project manager is also useful.  I’m not talking about that either.

I’m talking about the phenomenon which I have seen with depressing frequency almost everywhere I have worked.  You have a manager – or rather, somebody masquerading as one – who sits in an office on the floor of a modern building with around 5, 10, or 15 direct reports all of whom work on the same floor mere yards from his own office.  The entire team works right next to each other for 40 hours per week, yet once per week the manager insists each employee fills in a spreadsheet or writes a report explaining what they have been doing for the past 5 working days and, usually, what they will be doing for the next 5.

This is pathetic for two reasons.  Firstly, a decent manager should know, broadly, what each of his employees is doing at any given time, i.e. what project they are working on, the status of that project, and the main issues that have arisen in the recent past.  We’re not talking departments of 40 or 100 people here, this is a dozen or so people working on half a dozen projects.  He should acquire this information not from formal reports but by osmosis: attending the kick-off meeting, being involved in the major issues, but most importantly talking to people.  When I’m working in a department I know what all my colleagues are up to and what the major issues are because I talk to them.  When I was young I tended to get bored easily and so wandered from office to office and desk to desk disturbing people for a natter.  In doing so I learned more about what was going on in the department and who was doing what than my managers.  So when I got older and became a manager, I did the same thing: on an almost daily basis I wander from one employee to another and shoot the breeze (an activity driven in part by the fact I get as bored now as I did when I was a junior engineer).  Within a month or two, you know exactly what everyone is up to and what difficulties they face and, more importantly, you’ve gotten to know each individual as well.  Very few managers do this though, and a common complaint I hear among engineers and other staff is that weeks and sometimes months go by without the departmental manager ever coming into their office (one manager I worked with managed to visit his engineering team – located five or six doors down – precisely once in a whole year).  Yet they receive several dozen emails from him per week.

Secondly, this would not be so bad were the manager just going through the motions of weekly reports because he is compelled to by his own management.  But more often than not the manager genuinely has no idea what his department is doing unless the weekly reports are filled in.  I have seen people occupying middle management positions come rushing into my office demanding I complete the weekly report because he has a meeting with his own hierarchy that afternoon and he needs to know what’s going on.  Anybody in this position should be fired for incompetence, but that would leave few remaining.

It is a good rule of thumb that if you are a manager and you rely on certain information to do your job and that information can be obtained locally, it is far better to go and get it yourself than to try to get people to send it to you regularly.  For a start, you can be sure you are getting the information you want in the form you want it if you go and get it yourself.  And if you have shown enough interest to get it yourself, chances are you’ll be able to spot when somebody is serving up bullshit.  If you are asking people to provide key information as a matter of course instead of going to fetch the information as and when you need it, you’re asking to be duped.

A manager needing his neighbours to fill out reports to know what they are doing is one thing.  The utter uselessness of the reports themselves is another.  A number of years back I questioned the necessity of filling out weekly reports and was assured by my boss that the senior management reads the information therein and as such it is very important.  So I tried a little experiment.  Each week I would change the date of the report but leave everything else unchanged, and submit it as normal.  After three months of this nobody had spotted anything.  Only when I went on holiday did my replacement drop me an email and ask why the information in my last 12 weekly reports hadn’t been updated once.

In another role I once had to stand in for my boss’ boss, i.e. two management levels above me, and as such I went to one of these senior management meetings for which these reports are allegedly prepared.  It consisted of each attendee reading out, line by line and direct from his own report, the entire list of activities his department was engaged in.  The chair of the meeting – a director – followed line by line from his own copy and asked any questions that occurred to him while everyone else sat in silence waiting their turn.  Why the director needed the report and the meeting I don’t know, because one did the same job as the other.  Not that he actually made any decisions based on the contents of the report: all he wanted was to be informed.  I never once heard of a major decision being made based on the content of these reports or any others like it.

I later learned that our subsidiary’s weekly reports, which must have numbered several dozen, got packaged up each week and distributed to over a hundred people ranging from the offshore installation managers to the directors in head office.  I saw one of these combined reports once, it ran to hundreds of pages detailing the individual activities of every department in the subsidiary.  Included were activities such as “report issued for checking” or procedure to be updated”.  The projects’ director in HQ would receive one of these from every subsidiary in the company each week.  For a joke I asked whether he actually read any of them when I was in a progress meeting.  My own manager flashed me a murderous stare and said of course he read them, they were very important because “he needs to know what is going on”.

Which he didn’t of course, and nor did anyone else in copy of the reports.  Because sure as eggs are eggs, whenever any of these buffoons needed an update, or clarification on what we were doing, or was asked to approve something, we would receive an impatient phone call and we’d have to explain the whole situation right from the beginning.  Including to our own department manager.

The short version: if you manager is demanding a weekly report from you, chances are he’s incompetent.  If he says he needs it so that he knows what is going on, he’s definitely incompetent.  If he says he needs it because his own management needs it, the whole hierarchy is incompetent.

“Somewhere in here is our productivity figure.”


With Socar being a state-owned company in a country which is about as transparent as Hillary Clinton’s past business deals, I doubt we’re ever going to find out what caused the fire on board their platform in the Caspian sea over the weekend which seems to have cost the lives of 29 people, with another 3 having been swept overboard a separate platform operated by the same company.

Which leaves the floor clear for people like me to indulge in uninformed speculation.

By my reckoning, one of two things has happened.

Theory one.  The root cause of the fire – a leaking valve, a corroded line, a damaged piece of equipment – has been known about for a while.  The practices that caused the escalation of the fire – bypassed safety systems, faulty detectors, poorly designed equipment, shoddy training, poor maintenance – has also been known about for a while.  In fact, these issues will have been identified and raised again and again by the people who work on the rig to those on the shore, both formally and informally.  How do I know this?  Because it’s the same on every site I’ve ever been on, that’s why.  The middle managers in Socar would have seen the issues raised in the offshore logs, inspection reports, safety management systems, and emails but would have ignored them safe in the knowledge that they are not directly responsible for dealing with them.  They would have had meetings, and discussions, and then more meetings followed by more discussions, but nobody would have taken ownership of the issues for the simple reason that he or she doesn’t have to: if they don’t, they won’t get admonished, let alone fired.

Now you might be forgiven, dear non-oil and gas reader, that the Maintenance Manager in an oil company is responsible for maintenance but you would be wrong: the holder of this title, like everyone else, must beg for permission to do anything from hire a painter to buy a new gasket from a series of managers one to four levels above him, providing justifications which collectively make War and Peace look like a spot of light reading for the beach.  Nine times out of ten the request will be denied, for one simple reason: it costs money.  Even if it was in the budget, it still won’t be approved because it is far easier for successive managers in the hierarchy to reject it because there are no negative consequences for doing so (other than a big fucking fire further down the line), whereas if he approves it he now must take some ownership of it and justify it to his manager.  And that will never do.  Not that any of these managers will cite costs as the grounds for rejection, oh no.  Instead, they will simply declare that they don’t have enough information, and demand “justification”.  This whole process of application and rejection will take about 6 months, and so the Maintenance Manager can happily pretend to do his job by putting in requests for approval in the full knowledge that he has plenty of time to plan his holiday, jack up some training in Singapore, and micromanage some underlings before he is expected to act on it again.  The rest of the managers can sit at their desk micromanaging their underlings by telling them to correct bullet points in PowerPoint slides safe in the knowledge that they cannot be held responsible as they simply didn’t have enough information to approve the request.

Meanwhile gas is still pissing out of that corroded line and nobody is doing anything about it.

To add insult to injury, the workers who have to eat, sleep, and shit 30-40 metres from this leaking line will be subject to regular, condescending lectures and emails from the middle and senior management about how “safety is our no.1 priority” and how “safety is everyone’s responsibility”.  The production superintendents and site supervisors will have been subject to appalling, informal pressure from their management to cut corners, put up with dangerous conditions, and adopt highly questionable practices in order to avoid career-minded individuals higher up the line potentially looking bad by asking for some money to do or buy something.  Such pressure would come with threats concealed by terms like “team player”,  “part of the solution rather than the problem”, and “being flexible”with rather unsubtle implications that the individual’s career will almost certainly suffer if they prove to be “unhelpful”.   The site guys will be further insulted when, having exhausted all other avenues to get the problem solved and one of their number interrupts a senior manager who is sanctimoniously droning on about safety to tell him they have had a leaking line on their platform for over a year, he gets told that “this is not the correct time to bring this up”, “there are ways to approach such matters” and that he “should have raised it through the correct channels”.

Now that a large fire has broken out – possibly caused by water ingress into a motor whose specification was downgraded during the design phase to cut costs causing a spark – these middle and senior managers will be frantically checking and possibly deleting their emails for any sign that they were instructed to deal with one or more of the issues that contributed to this incident and the subsequent death of almost 30 of their colleagues (albeit junior ones, so who gives a fuck?).  But the system works well to protect all but the most junior personnel, and nobody will be held accountable.  If possible, Socar will find a contractor company which can plausibly, or even not so plausibly, be blamed for some infraction or other which, if you squint and tilt your head, could possibly be the cause of a fire on a company-run facility, and shit all over them, piously lecturing the entire field of service providers in Azerbaijan of the need to demonstrate their “commitment to safety”.  And nothing whatsoever will change.

It would be comforting to pretend that such practices are confined to poorly-run state-owned oil companies, but alas such behaviour is nigh-on universal: you will find it anywhere and everywhere, without exception.

Anyway, that’s the first theory for what’s happened.

The second is that neither the workers or the management had the slightest idea of the risks present on their platform and this fire came out of a clear blue sky.  In which case: hooray for local content!

“Can it last until my next posting?”