Speaking at the 17th GE Oil & Gas Annu- al Meeting in Florence, Italy, at the start of. February, Immelt outlined GE
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HOW TO GET THROUGH A DOWNTURN 06
TRUST CRITICAL FOR MEXICO ENERGY REFORM SUCCESS 08
SCOTLAND’S OIL INDUSTRY MIGHT BE DOWN, BUT IT ISN’T OUT
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HOW TO GET THROUGH A DOWNTURN
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Trust Critical for Mexico Energy Reform Success
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Scotland’s Oil Industry Might be Down, but It Isn’t Out
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Low Oil Prices Likely To Lighten Political War Chests
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CAREERS EDITOR
MANAGING EDITOR
Valerie Jones
Saaniya Bangee
APAC EDITOR
DESIGNER
Chee Yew Cheang
Marcus Tenette
SENIOR EMEA EDITOR
CREATIVE DIRECTOR
Jon Mainwaring
Eric Duenas
SENIOR EDITORS
VP CONTENT
Deon Daugherty Karen Boman
Bertie Taylor
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How to Get Through a Downturn Andreas Exarheas, Assistant European Editor
@Andreas_Ex
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T
he latest fall in oil prices has
“We grew our investment in R&D [research
now, five years from now, ten years from
hit the energy industry hard.
and development] last year … we’re
now and you’ve got to take the actions that
Figures have dropped from
working on financing to try to provide bet-
really protect the future.”
over $100 per barrel in 2014 to as low as
ter CAPEX [capital expenditures] to OPEX
$27 per barrel this year and a variety of
[operational
transitions
lieve they can get through the downturn by
oil and gas companies have responded in
… We haven’t blinked during this crisis.
doing nothing in the hope of a speedy oil
different ways in a bid to survive the down-
We’ve kept investing, we’ve kept driving
price recovery, Immelt stated that the situ-
turn.
and we’ve made the company better and
ation is unlikely to improve any time soon:
we plan to continue that progress in the
“We live in a time of slow growth and
Some energy firms have reacted to the dramatic price reduction by streamlining
expenditures]
future.”
In a warning to oil and gas firms that be-
volatility. It’s unlikely to change anytime
their operations while others have largely
Immelt, who became CEO of GE in 2001,
soon … You have to just keep driving pro-
resisted this path, taking a more relaxed
also emphasized that companies should
ductivity and investment in the cycle we’re
approach in the hope that the value of
just “focus on what they control” during
in today. You have to learn to act in the face
crude bounces back soon. While both tac-
the downturn, in reference to the current
of uncertainty.”
tics have their supporters, GE’s Chairman
low oil price. The GE frontman told energy
When concluding his talk, Immelt im-
and CEO Jeff Immelt has suggested that oil
firms to only look at data and facts too, as
plied that the current oil price crash did
and gas companies looking to weather the
speculation can often lead to confusion,
come with some positives. The GE leader
current crash should be more inclined to
which is unhelpful in the current business
claimed that these downturns are “good
the former method, rather than the latter.
climate.
for us” and that they toughen up the in-
Speaking at the 17th GE Oil & Gas Annu-
Self-reliance was another trait that Im-
dustry, producing “better leaders” as a
al Meeting in Florence, Italy, at the start of
melt urged oil and gas companies to adopt.
result. If this is true, at the very least the
February, Immelt outlined GE’s efficacy at
The GE CEO suggested that energy firms
oil and gas sector can look forward to a
surviving market crashes, highlighting the
should depend on themselves to imple-
more robust structural system in the years
firm’s aviation business in the process:
ment structural change rather than wait
to come.
“We know cycles. We’ve lived through cycles, we know how to lead a company
around for external industry pressures to influence their behavior:
through cycles … [After 9/11] we saw …
“At GE we believe in self-help, we be-
the destruction of the commercial aviation
lieve in action. Taking costs out on our
business around the world. We saw as
own. Having a strong balance sheet on our
power deregulated in the United States,
own. Taking opportunities on our own … I
we went from shipping more than 200 gas
look at deals like Shell and BG as self-help.
turbines in the United States to four in one
They’re going to get a bunch of people that
year.”
criticize them, we’re not going to know the
Turning his attention to the current energy sector crisis, Immelt outlined the
answer for a couple of years, but they’re moving, they’re acting.”
need to cut costs and highlighted his own
Speed and flexibility were also cham-
company’s “lean” nature. Despite this
pioned as vital characteristics a company
cost-cutting, Immelt has advised oil and
will need in order to survive this downturn,
gas companies to follow GE’s approach
as well as future market crashes:
and continue investing in their own brands:
“You’ve got to stay fast and flexible … We’re going to be here three years from
GE Chairman & CEO
Jeff Immelt
Source: GE Oil & Gas
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Trust Critical for
Mexico Energy Reform Success Karen Boman, Senior Editor
T reform.
@KarenBoman
he increasing lack of trust in Mexico’s governmental
Without trust of authorities, no public policy or reform can really
institutions and their ability to apply rules presents a
succeed, said Ana Elena Fierrao Ferraez, dean of the masters in ad-
challenge as the country continues to implement energy
ministration and public policy program and professor at Centro de Investigacion y Docencia Economics A.C., during an event at Rice University in Houston. The event, “The Rule of Law and Mexico’s Energy
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Reform”, explored how the rule of law in Mexico and energy reform
issue of what happens if someone is faced with a situation, such as
intersect. Ferraez and other experts shared findings from essays
an official wanting a bribe, and what happens if that person does or
they had written on the subject.
doesn’t give the bribe, is another issue.
In 2015, The Corruption Perception Index published by Transpar-
Ponce, who defined the rule of law as the definition of a govern-
ency International ranked Mexico 95 out of 167 countries in terms
ment’s power and what allows the government to limit the actions of
of being perceived as corrupt; Mexico had a score of 35 on a scale
various members of its society, said the World Justice Project mea-
of 0 to 100, Ferraez noted. The lack of trust stems from the belief
sures the rule of law in countries around the world. According to the
that business contract awards are based on personal relationships,
findings of the group’s Open Government Index 2015 report, Mexico
rather than rules and processes of institutions, Ferraez said. This has
ranked 42 out of 102 countries in terms of the openness of the na-
created concerns that fair trade cannot occur.
tion’s government. In terms of publicized laws and government data,
Mexico has taken steps to address corruption issues; earlier this
Mexico received a score of .43 – with zero being the least open and
year, Mexico’s Congress passed an anti-corruption law, amending
1 the most open – and ranked 64th in this area. In terms of right to
it’s Constitution to strengthen oversight of public officials and desig-
information, Mexico scored a .61, or a global ranking of 29. In terms
nate a special prosecutor to tackle corruption. However, some critics
of civic participation, Mexico ranked .56, or 67th worldwide, and for
expressed concern that the law was just a “facelift” for existing insti-
complaint mechanisms, Mexico came in at .62, or 34th globally.
tutions and won’t address the low rate of prosecutions for corruption in Mexico.
“An open government – conventionally understood as a government that shares information, empowers people with tools to hold
“It’s not enough to prosecute bad civil servants,” Ferraez noted.
the government accountable, and fosters citizen participation in pub-
“The legal system must give equal treatment to all, and give access
lic policy deliberations – is a necessary component of a system of
to public information to all. We have to guarantee that the rule of law
government founded on the rule of law,” the group said in the 2015
is the rule and not an exception.”
report.
Transparency and accountability of public institutions and pro-
According to Cambridge, Mass.-based National Bureau of Eco-
cesses will be particularly important if Mexico is trying to attract for-
nomic Research, transparency in government institutions and pro-
eign and private investors to make significant financial investments
cesses encourages foreign investment.
in Mexico’s energy sector, Ferraez stated. Part of having transpar-
“Without exception, a country’s lack of transparency is associat-
ency and accountability includes publishing information on energy
ed with lower exposure of emerging market funds,” according to
reform to meet international standards that is accurate, reliable and
a NBER working paper “Transparency and International Investment
usable by all parties. This is needed to ensure fair competition.
Behavior”, written by R. Gaston Gelos and Shang-Jin Wei.
Another change that needs to occur in public resource manage-
According to Gelos and Wei, in terms of attracting needed foreign
ment is accountability for audits. Right now, the law isn’t clear on
capital, a lack of transparency indeed may affect economic perfor-
what would happen if an audit uncovers bad results, Ferraez said.
mance by repelling international investors.
Mexico’s general accounting office needs to able to effectively audit companies, and set incentives for public companies to act in an effective and productive manner, as outlined in Article 25 in the Constitution.
“There is relatively clear evidence that low transparency … tends to depress the level of international investment.” Rigzone reported last year that anti-corruption strategies would be critical for companies looking to navigate Mexico’s energy sector.
Alejandro Ponce, chief research officer with the World Justice Project, also touched upon how trust and investor perspective could impact energy reform. The possibility that a state may not follow the rule of law poses a risk for companies investing in that state. The
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Scotland’s Oil Industry Might be Down, but It Isn’t Out Jon Mainwaring, Senior Editor, EMEA
R
@oiljon
ecently, I read the distressing news that former oil
First of all, there is a very large amount of decommissioning work
and gas workers in Aberdeen were having to rely
to be done in the North Sea over the next decade. During this peri-
on food banks – the UK’s charitable solution to food
od, some GBP 17 billion ($25 billion) will be spent on scrapping 79
poverty – in order to help make ends meet. Apparently, local char-
platforms and plugging 12,000 wells, according to figures from
ities in the Scottish city saw double the number of food parcels
DecomWorld. Such an amount of work should keep many oilfield
delivered to the needy during 2015 than in 2014. Meanwhile,
engineering and services firms busy.
there was a sharp rise in people claiming out-of-work benefits in northeast Scotland towards the end of last year.
Then there is the fact that oil and gas is not the only source of energy that the North Sea produces. The offshore wind industry is
The low oil price has had a devastating short-term effect on
continuing to grow significantly in the UK and Netherlands zones
Aberdeen and northeast Scotland. So much so that both the cen-
of the North Sea, and offshore oilfield services companies are
tral UK and Scottish governments have been spurred into action,
becoming increasingly aware of the opportunity to employ their
with various tax-payer funded initiatives being announced during
know-how within this sector. Earlier this month I had a chat with
the past few weeks that are designed to both support the oil and
one such firm, whose business was wholly dedicated to oilfield
gas industry in the region and help train its former workers so
services just four years ago, but today has around a third of its
that they can gain new skills that may help them find work in
turnover accounted for by the offshore wind sector.
other sectors.
Finally, northeast Scotland remains an oil and gas hub that gets
But although these hurried measures are no doubt needed to
a large chunk of its revenues from international markets. Scot-
help the Scottish oil and gas industry and the people of northeast
land’s oil and gas supply chain sells its products and expertise
Scotland through a difficult period, they should not be seen as an
to markets as far away as Australia, while exports to oil and gas
indicator that the game is up for the region when it comes to its
projects in Africa account for several billion dollars annually.
involvement in the energy sector.
The Scottish oil and gas industry may be down at the moment, but the game is far from up.
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LOW OIL PRICES
Likely To Lighten Political War Chests Deon Daugherty, Senior Editor
W
@DeonDaugherty
hile the rhetoric heats up and candidates
hind folks like the junior senator from Texas, Ted Cruz or the
vow to lure more voters into the arena of
upstart GOP senator from Florida, Marco Rubio.
presidential politics, one part of the race for
But although a lot can happen during the next few months,
the White House will likely see a clear decline: money donat-
it’s unlikely that oil prices will rebound to a level that moves
ed by energy companies that are fighting their own financial
the needle for political donations, he said.
battles.
“Establishing a new normal – not $110, but somewhere in
Historically low oil prices – currently resting below $30 per
$60s – will happen slowly, over the course of a couple of years,
barrel – have led the vast majority of oil and gas companies
as opposed to the next several months,” Jillson explained.
to cut back on their key expenses: projects, equipment and
“Generally, economic impacts affect politics with a six-month
people. For those in the oil patch to open their companies’
lag. If oil prices, or economic growth in general, begin to tick
coffers to politicians – even when the U.S. presidency is at
up, people don’t believe it initially. They’re not ready to bank
stake – appears to be a longshot.
on it.”
Cal Jillson, a leading political expert and professor of polit-
And with production in the Texas shales still pumping out
ical science at Southern Methodist University in Dallas, told
hydrocarbons and the prospect of other global production
me in recent weeks that a retrenchment among those in the
increases, a pick-up in prices – and public faith that they will
oil patch is all but inevitable.
stabilize – remains unlikely, he said.
“A lot of people who were flying high four or five years ago are now fighting to survive,” he said. However, the handful of companies with strong balance sheets won’t completely abandon the process, he said. They’ll
“I expect oil and gas will play a role [in the election] as a part of the public’s concern with the economy, but I don’t think it will be a central role or a significant part,” as it has in the past, he said.
naturally remain active, contributing to the super pacs be-
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