FEELING sorry for the oil companies is something I normally leave to Chancellors of the Exchequer but, after devouring Mike Shepherd’s highly entertaining and informative new book about the past 45 tumultuous years in the North Sea, I think I have a better idea of how Gordon Brown and George Osborne (to say naught of John Swinney) came to have such misplaced sympathy for some of the largest, richest and most ruthless corporate conspiracies in the history of the world. Corporations like BP were indeed in trouble during the early 1970s after ‘their’ oil in countries such as Kuwait and Iran was nationalized. It had never really been their oil, of course, although they had discovered and exploited it; the British Empire and its oil-fired gunboats existed precisely to protect and promote the interest of companies such as the Anglo-Iranian Oil Company (BP’s original name) and to ensure the local tribes got as little of the profits as possible. Hence the UK/USA-sponsored coups d’état in Iraq and Iran, way back then.
With the great surge of nationalism in the former colonies after the Second World War, most of the world’s oil reserves were taken over by the new states stumbling out of the ruins of the British, French, Dutch and Belgian empires. Today over ninety per cent of the global supply of oil is nationalized. So was BP, of course, with the British Government holding a majority stake in the company from an early date, for obvious strategic and financial reasons that Winston Churchill understood, if Margaret Thatcher didn’t. The same reasons lay behind the 1974 Labour Government’s creation of the British National Oil Corporation (BNOC) when North Sea Oil came on stream, emulating the Norwegian Statoil. That was before the sado-monetarist epidemic of 1979, which led to BNOC (now re-badged as Britoil) being engulfed by BP, and BP in turn being wholly privatized. This resulted in massive short-term and long-term losses to the Treasury. Thatcherism sold out the national interest, in both senses.
Even now, though, it’s the government (in theory, us) that actually owns the oil under the seabed; that’s why oil companies have to bid for licences to prospect for and extract it. The situation is the same in the United States, where the government still owns vast tracts of oil and gas reserves onshore and offshore in Alaska, for example, and the state of Alaska itself has a major tax take, on top of the Feds’ imposts. Let’s not be too sorry for the masters of Big Oil; in return for those taxes they do choose to pay, they always have Big Government rooting for them if things get slippery. When the oil price dips now and again, as it did recently, then the companies run bawling to the Treasury, forecasting the end of the world unless they get even more tax breaks. Tame journalists echo the hysterical cries of alarm. George Osborne, like all his predecessors, has obliged once again. Meanwhile, the latest blip in the oil price gives the oil moguls the chance to tighten the screw on their contractors, cut wages, tell some awkward staff they’re NRB (Not Required Back) and put the frighteners on the offshore labour unions, long since co-opted into the same script.
Even so, the oil companies can never feel secure. There are various reasons for this: one is the slow but steady rise of sustainable energy which, if it were ever allowed the same favourable tax treatment by the Treasury, would quickly become a much more serious competitor for BP and the rest. The second is the continuing state of war, or the threat of war, in many of the world’s oil provinces. Then there is the escalating cost of finding and getting oil in more and more remote parts of the world, as Shell just found out in Arctic Alaska and as Total is discovering with its much-delayed and way over-budget gas project in the wild Atlantic west of Shetland. Worse than any of these problems is the fact that no oil company ever actually knows exactly how much oil and gas there is in the reserves it controls, or how much of that unknown quantity it might realistically be able to extract and sell. This affects the valuation of the company and that in turn affects the share price. Guess the reserves wrongly and you’re in serious trouble.
The geological puzzles behind this fundamental uncertainty about recoverable reserves, and the worry it causes shareholders are what Mike Shepherd has spent his working life trying to solve. In one of the most fascinating sections of Oil Strike North Sea, he describes the geological detective work involved trying to predict the presence of oil from maps of seismic echoes bounced off layers of clay, salt, sandstone and chalk, far below the North Sea. ‘The search for oil is a chancy business,’ he writes. ‘You sweat the data for months, agonizing over whether there might be some oil in a moderate-sized bump 3,000 metres underneath the sea bed; you convince yourself and everybody else there could be oil there; and then the oil company spends £25 million on a well which doesn’t find anything. Not a sniff.’ This is his expert conclusion, after 35 years in the business: ‘Evaluating how much oil is left to produce in any one field is in the realm of arm-waving prediction…Nobody really knows how much oil we have got left to produce.’
Shepherd is an oilfield production geologist and, just as importantly for this story, an Aberdonian who knows and loves the Granite City. We must be grateful to his Ph.D. supervisors at the City of London Polytechnic who fell out so badly with their postgraduate student that in 1980 he returned to his native city without a planned doctorate on the volcanic rocks of Rum and joined an oil service company, working as a mud logger. This sounds a lowly, dirty trade and it is, but without mud loggers we would have no fuel for our internal combustion engines. Their job is to pick over rock fragments brought up with the drilling mud from thousands of feet below the seabed, to raise the alarm if there are signs of a blow-out, and to look for traces of oil in grains of sandstone. Shepherd’s account of how this is done, how drill bits are steered through the strata, and how the oil and gas got into the rocks in the first place, is one of the best I’ve read. He has that rare skill in a professional specialist – he can tell a complicated story in plain language. Not surprisingly, his textbook, Oil Field Production Geology, is the standard industry reference on the subject, partly because it is so well written.
Shepherd did not stay a mud logger for long but when promoted to production geologist he still had to get his hands (and most of the rest of him) dirty on the drilling floor when core samples came up from below. In time he became one of the foremost experts but never a company man; he’s worked for BP, Occidental, Elf, Amerada Hess and others during his career. He has a realistic view of what they are and why they do what they do. Now he’s about to retire he can be blunt: ‘I sell my labour to oil companies. I don’t answer for them,’ he writes in his introduction. In ‘Big Money’, a chapter about ‘equity’ disputes – where companies owning adjacent and interconnected oil fields try to decide how to split the takings – he describes ‘extremely bad-tempered meetings’ with ‘strategic trickery and total mistrust on an epic scale’, as Statoil and its British neighbours argued the toss for thirteen years because ‘a few per cent difference in who owns what where can turn out to be a very large sum of money’. Hundreds of millions can be involved and, ‘as oil companies think money, breathe money and are covetously desirous of money, this is as deadly serious as it gets for them’.
He recounts a famous ‘telling conversation’ when Armand Hammer, the boss of Occidental, visited the Piper Alpha platform, some time before it blew up. In response to an assistant mentioning that there was a distinct rumbling sound coming from underneath the platform as they stood on the deck, Hammer said: ‘I can just feel those dollars going through underneath me and that’s what it’s all about.’
I feel sorrier for the whales: after several centuries of being hunted for their oil, in the mid-19th century James ‘Paraffin’ Young famously discovered a cheap substitute – by fracking the oil shales of West Lothian (at the surface!) and then burning them to release the oil. Despite that, the whale extermination campaign continued but, just as the world started to protect the great cetaceans from this insane and unsustainable harpooning, along came the offshore oil and gas industry’s exploration boats, letting off bangers over the ocean shelves, to deafen and disorientate those leviathans who had somehow survived the onslaught and imagined they now had only the Japanese and the Norwegians to bother them.
Those subsea seismic bangs, and the microphones towed by ships to record their echoes from far below, were and are the basic tools of Shepherd’s trade. The seismic sensing kit has got a lot smarter than it was in the 1970s, when long print-outs of seismic plots could take up yards of office space. These days oil company geologists use three-dimensional maps on computer screens to work out where the oil and gas may be lurking between source rocks, reservoir rocks and cap rocks, but the data still comes from the bangs. With no seismic bangs there would be no bucks. Shepherd is not an uncaring person but he doesn’t go far into this aspect of his industry’s environmental effects. He does, however, face up to the climate change question. His own role in the carbon enrichment of the atmosphere is explained, if not excused, by the necessity of keeping the oil and gas industry going until we have affordable, sustainable alternatives. Few would disagree that we are a piece off that yet. Nor does Shepherd flinch from describing the horrific accidents that have killed so many in the rush for oil and gas revenues; the sections on the Piper Alpha catastrophe, the Alexander Kjelland rig capsize, the Chinook helicopter disaster and serial tragedies in the offshore diving industry are particularly well and sensitively done. But he does not dwell on the obvious conclusion that these incidents had a common theme: they all happened because of cutting corners to save money, whether it was using equipment that wasn’t up to the job (e.g. the design of the Alexander Kjelland), or economizing on maintenance (e.g. the fatal crack in the spiral bevel ring gear of the Chinook), or not following safe repair schedules (e.g. the faulty gas valve on Piper Alpha), or the financial pressures on diving contractors to use poorly maintained and unsuitable equipment and to employ inadequately trained divers. None of the incidents he describes told us anything new. In all of them there was existing knowledge and expertise that, if properly followed, would have prevented disaster.
Shepherd is at his best when writing from first-hand experience. He is particularly good on what life on rigs and platforms is really like – for example, trying to sleep in a cantilevered accommodation block called ‘The South Truss’, hanging over North Sea storm waves that send shudders through the entire structure. He is clearly still captivated by his subject and the book’s last chapter is a masterly piece of time travel, down 4,400 metres of drill string and 299 million years of geological history, into what the eighteenth-century Scots geologist James Playfair called ‘the abyss of time’. This piece is in the John Gribbin class of science writing, describing ancient landscapes and cataclysmic convulsions, from which ‘emerges an overwhelming feeling of human frailty in the vastness of geological time’.
The author is less sure-footed on recent politics, when he admits that the 1974 McCrone report (which confirmed that an independent Scotland would be viable, due to oil and gas revenues) was kept secret by the then Labour government and its Tory successors but then asks us to believe that ‘the reality was more mundane than a conspiracy to deceive the Scottish public’ because at that time most people didn’t believe there would really be an oil boom. This is lame, not to say disingenuous. An unexpected treat, however, is the very amusing chapter on the clash of management styles when his American employer Occidental was taken over by the French company Elf (later swallowed by Total in one of the many acts of corporate cannibalism mentioned in the book).
The section on the Shetland council’s oil deals in the 1970s is workmanlike and accurate as far as it goes but ignores the fact that senior Labour Party figures tried to stymie the agreement that gave Shetland an oil reserve fund and a charitable trust fund which together now total some £400m. His account is marred by the persistent use of the solecism ‘the Shetlands’. It’s not ‘the Aberdeens’ so why would it be ‘the Shetlands’? It is also a pity that the publisher did not hire a proof reader to remove all the irritating comma splices. The map is more or less useless but that is normal these days in cheaply-produced hardbacks. The chapter references are excellent but the book could also do with an index.
These are minor quibbles. Having spent a good part of my own career chronicling the ‘sagas’ of the ‘pioneers’ opening up ‘challenging’ new ‘frontiers’ of oil and gas in the north-east Atlantic and in Alaska, I have grown weary of oilmen’s memoirs echoing the testosterone-laden language once favoured by oil company press officers and other boosters. Oil Strike North Sea is different. Shepherd tells an extraordinary story in plain words, without talking down to the lay reader. The result is a rattling good yarn that is a major contribution to public understanding of what goes on out there, over that cold, grey, storm horizon.
Oil Strike North Sea: a First-hand History of North Sea Oil
Luath Press, £20 hardback, ISBN: 978-1-910745-21-2, PP187