Head 1, Hunter 0

This is an old post which I’d made private when it was sensible to do so. Now I’m studying HR it serves as a handy reminder as to how bad things are out there, so I’m reposting it.

A few months ago I received an email from a manpower agency representing an independent oil company that was looking to recruit an Engineering Manager to be located in a West African country. The reason why I didn’t just hit *Delete* as I do with most of these emails is because, for once, the agent had named the company and provided a job description. This is unusual in the extreme, most of these clowns email you with an exciting opportunity with a company they cannot name in a vague location with a job description “to follow”. Uh-huh. I’ve written about this before.

So I replied that I was interested, just for the hell of it, and the agent responded with an outline salary and benefits package, which looked pretty good. So I became more interested. I wasn’t exactly looking to move company, but I think it’s always wise to keep an eye on what’s out there, know what the market thinks of you, and get in some interview practice (you never know when you might need it!) And if my current employer was only going to offer me a role in a filling station as my next assignment…well, you get the picture.

Firstly the agent interviewed me, just to make sure that I wasn’t a complete Herbert. Then within a couple of weeks I had a phone interview with the HR bloke, who was about 25 years old and recently recruited from…a manpower agency. This was a pretty standard HR interview, but near the end I queried the part of the salary package which made reference to a “hypothetical tax deduction”. All oil companies do this for various reasons: deduct taxes from staff salaries in one place and actually pay taxes wherever they’re working. This is fairly standard practice, but the tax rate is usually pretty low. In this case, the HR chap told me I’d be taxed at the full UK rate.

Whilst working in West Africa on a residential basis.

I didn’t say anything at the time, but when a 50% or whatever tax is applied to the salary package it didn’t look anywhere near as attractive. I called up the agent, told them I was no longer interested, and they said they’d “look into it”.

I was therefore quite surprised to be invited to another phone interview, this time with the Head of Engineering & Projects (who would be my functional line manager). Having nothing to lose, I went ahead and did it anyway, and thoroughly enjoyed myself. With no pressure to actually get the job I was myself (blunt and opinionated), and had a good discussion with the chap on the other end who clearly knew his stuff. It was far more of a technical discussion than the previous one, outlining the role, who I am, my experience, my management style, etc.  And I came away thinking that the role was a lot larger and more interesting than anything I’ve yet had, and with a lot more responsibility. Now I had no interest in doing another stint in Africa, but if the right position came up and they were throwing money at me…well, I can be persuaded.

It turned out I impressed them enough for me to be considered their front runner for the position (so the agent told me), and they arranged another phone interview (which would be the fourth, if you include the one with the agent). This one was with the Regional Manager, and during the conversation much was made of the benefits of working for a smaller, more flexible company which exercised common sense, made quick decisions, delegated responsibility, and kept procedures to a minimum. This was in contrast to a supermajor, which makes even the army look slick and efficient. I have to say, this prospect alone did appeal. Needing line manager’s authorisation to hang a white board in your office, and waiting 9 months for expenses to clear a 6-stage approval process, does tend annoy after a while. Like the previous interviewer, this chap was also pretty switched on and we had a good chat. I didn’t change my approach – blunt and opinionated – mainly because I don’t know how to be any other way, but I came out of that round still as the favoured candidate.

It had occurred to me that we would need a face-to-face interview before they’d make me an offer, but I assumed this would take place in London or some other half-normal place. So my expectation was that they’d send me an offer subject to a final interview, and if I liked it I’d jump on a plane to see them, spend a few hours sizing each other up, and then make a decision one way or the other.

This turned out to be far too sensible. Instead HR took the lead and said, through the agent, that I should go to this West African country to see the place and “meet the team”. Now if this can be done easily, then fair enough. If I was working in London, there’s no reason why I couldn’t jump on the plane to Aberdeen to meet a few folk and scope out the office. But almost nobody goes to these sort of locations on a scoping visit, they just jump aboard and hope it’s okay when they get there. I signed up for Sakhalin knowing nothing about it, and turned up in Nigeria for a 3-year assignment having never set foot in the place. It’s just the way it is, standard practice in the oil business. So I explained that I didn’t need to see the place, anything will be an improvement on Nigeria, and can we just get on with it please? Time was running out, as I would need to start talking about my next assignment with my current employer, and I don’t like to fanny people about too much.

Then word came back that I needed to go to this country because the Country Manager, Production Manager, and Maintenance Manager (or something) all wanted to interview me. So I looked at how I could get myself over to this country without my current employer knowing (they’d twig pretty quickly I wasn’t there on holiday). After a bit of research, it turned out that I couldn’t. It is not possible to lie about which flights you’re taking in and out of Nigeria, because we get taken to and met from every flight directly for (very sensible) security reasons. And I didn’t even know how I’d get a visa for this place, and if the agent or the company HR people knew they were keeping it to themselves. Checking the internet, I needed to apply for a visa in advance, but I had to find even that out for myself. HR were about as proactive as Israel’s Iron Dome.

So I went back to them with a proposal: the three people who want to see me can select one person to come and meet me in London on a certain Saturday, which I can plausibly claim is a brief trip home. They have their headquarters in London, so it shouldn’t be that difficult. Or all three could come, I really didn’t care. The agent took this proposal to the young HR chap, who seemed reluctant to pass it to his bosses. Instead he came back with a rather pompous repetition of his previous demand that I show up in this bloody country. So I told them, once and for all, I’m not sodding going. I’ve made a proposal, either answer it or leave me alone. And still nobody was any the wiser as to how I could get a visa.

The agent then kind of got shoved to the side and I spoke directly with the oil company, an HR girl who was actually quite nice but clueless. I told her that before I get on a plane anywhere I need a firm offer to discuss when I get there. Meanwhile, she was trying to persuade me that I really did need to go for an interview in-country. So I decided to give her a bit of training in How Oil Companies Normally Interview Candidates In A Sensible Manner (later, my colleagues thought I should have invoiced them a consultancy fee). I said it’s fine to want a face-to-face interview, that part I get, but it’s mind-bogglingly stupid to expect candidates to present themselves in the developing world for the purpose. Every other organisation arranges for candidates to come to a logical transport hub – Dubai, London, Singapore (where I had the main interview for my Nigeria job) – and a panel of managers spend 2-3 days conducting interviews and having a bit of a jolly. Nobody – not even blitheringly idiotic major oil companies – bring candidates to the arse-end of nowhere. In my case the Nigerian interview was conducted over the phone once the chaps I met in Singapore had given me the thumbs up. All of this seemed to be new to her.

What also seemed new to their entire organisation was the impracticality of flying between West African countries. They approached the whole thing as if it was a simple hop from Paris to London. For a company which prided itself on its African operations, they seemed to know little about how the place works.

Anyway, they came back with an offer. By this stage I had given them precise details of my current package, to ensure we’d not be wasting our time if they were only paying peanuts. Their offer matched my current package almost to the dollar, only more of theirs was wrapped up in discretionary bonuses. I was still being taxed at full UK rates, even though this money wouldn’t be handed over to HMRC and I’d have to remain a tax exile. Bearing in mind this company is very much smaller and far less well known than my current employer, the question of why the hell I would leave for the same money did spring to mind.

When they rang me back, for what was to be the last time, I asked them this. They said they considered their offer to be competitive, which I suppose it was if they were hiring somebody unemployed and not trying to poach somebody from a much larger and grander organisation. But these small independent companies have to poach people, and that means giving them an incentive to jump ship. Paying the same money isn’t going to interest anybody.

But that wasn’t the worst of it. She repeated the request, now backed by some manager or other, that it was “their policy” to conduct the Stage 2 interviews in-country. Stage 2?!! I’d had four interviews over the course of 2-3 months, and we were still not out of Stage 1! They couldn’t do the interview in London because “all the managers cannot come”, and they could not select one to make the trip because “that’s not how we work”. This was an outfit whose main selling points were quick decisions, flexible operations, efficiency, common sense, and a disregard for procedures.

Also, it wasn’t just the in-country managers who would interview me, I needed to present myself to my future colleagues as well and secure their approval. Which I admit was a first for me. Normally your management hires you and you meet your new colleagues on your first day in the office. This lot seemed to hire via some kind of star chamber.

In withdrawing my candidacy, I pointed out that if I wanted to experience indecision, nonsensical policies, managerial dithering, and general incompetence I could simply attend any random meeting in my own organisation. I didn’t need to change company to get this sort of thing. That pretty much burned the bridges, with them and the agent.

(Incidentally, they told me their other candidates had no problem going to interviews in-country. Which if true, and they find someone suitable, shows them to be doing things right after all. But I am curious to know who these other candidates were: lordy, if I’m the front-runner they can’t be that great! And I can’t imagine too many decent candidates leaving a major oil company to take up this role. So it wouldn’t surprise me if I get a call in 6 months time saying the position has magically reopened and would I be interested in reapplying?)

As things turned out, I did get other agencies calling me asking if I wanted to apply for this same position over the course of the next two years. And by pure coincidence I found myself a few years later in the same meeting as one of the managers who’d interviewed me. I decided to give him a little feedback on his company’s recruitment methods and he (unsurprisingly) got very defensive and said “well, that’s the way we work”. So I asked him if they ever managed to recruit anyone and he said they did, but within two months it was obvious he wasn’t suitable so they got rid of him. Then they hired another guy who walked about before six months was up, but which time the oil price had crashed and they didn’t need anyone there anyway.

“That’s the way we work.”

Share

One Man, One Vote

The financial press have a certain fetish about Total’s CEO Patrick Pouyanne. Here’s another gushing article:

Patrick Pouyanne pounced after Occidental Corp trumped Chevron’s $33 billion bid for Anadarko in April with an offer that includes raising financing by selling some of Anadarko’s operations worth up to $15 billion.

By keeping those in the know to a minimum, the French CEO was able to stay flexible in negotiations, take a swift decision and ensure there were no leaks until the binding deal worth $8.8 billion was announced on Sunday, a Total source said.

“Pouyanne proceeded in the same way he did with previous deals: a restricted task force, no bankers and no external counsel,” another source, close to the deal, told Reuters.

Throwing out the rulebook that expects CEOs to be surrounded by investment bankers and other advisers when dealmaking has become a trademark for the 55-year-old CEO and chairman of Total, who took the helm of the French energy major in 2014.

He has surprised investors with his acquisitions, such as buying Maersk’s oil and gas business in 2017 and Engie’s upstream LNG operations in 2018, setting one deal in motion after an unsolicited phone call with the controlling shareholder.

Shouldn’t we perhaps wait a little to see how rushing headlong into major deals while consulting almost nobody plays out over the long term? Look at this bit again:

a restricted task force, no bankers and no external counsel

You’d not hear this from fawning financial journalists, but Pouyanne has a reputation for yelling at anyone who doesn’t tell him what he wants to hear and demanding absolute obedience from all those around him (he’s a product of a grande ecole, after all). And here he is doing multi-billion dollar acquisitions in record time without involving bankers or outsiders. What could possibly go wrong?

For all the praise heaped on him, thus far Pouyanne is reaping the rewards of projects sanctioned by his predecessor. He has put considerable personal investment into Total’s Uganda project but that’s not exactly going according to plan:

French oil and gas major Total’s chief executive said on Thursday that the firm’s Ugandan Lake Albert oil project will be a personal priority this year after setbacks led to a delay on a final investment decision (FID) in 2018.

The project, which was expected to have been cleared last year, has been delayed due to disagreements over field development strategy, tax disputes and a lack of infrastructure such as a refinery or export pipeline.

Indeed, it has all the hallmarks of a development someone jumped into feet-first without carrying out proper due diligence and ensuring the right legal structures were in place. I don’t know if Total’s acquisition of Anadarko’s African assets is a genius move or not, but financial journalists should be asking questions over how decisions get made in that company, not blowing smoke up the CEO’s arse.

Share

Dinosaur Petrola

A few weeks ago news broke that Chevron had bought US independent Anadarko for $33bn, the largest oil and gas acquisition since Shell bought BG in 2016, bigger than Total’s acquisition of Maersk Oil in April 2017. The acquisition is obviously done to boost Chevron’s US shale and LNG production, so it’s very much a US-centered affair. It is this passage I want to focus on:

Chevron, Exxon, Royal Dutch Shell Plc and BP Plc largely missed out on the first phase of the shale bonanza, when more nimble independent producers such as Anadarko pioneered shale drilling technology and leased Permian acreage on the cheap.

One of the things which surprises me is how slowly the oil majors are reacting to cataclysmic changes in the oil and gas industry. But their lumbering clumsily about in the US shale plays while nimbler outfits cleaned up is really just a sideshow. The real change is in how the oil majors will do business in future. Gone are the days when a supermajor would turn up in a stone-age society, bung the local chiefs some shiny trinkets, and bring in a battalion of palefaces to exploit the reservoir for the next 25 years. Nowadays national governments control pretty much every sizeable oil and gas prospect regardless of which foreign company holds the licence, and nothing is going to get developed in future without the full cooperation of the government or their proxy in the form of a national oil company. This has been the case for some time now, and the past decade or so has seen a rapid increase in local capabilities, whittling away the added value foreigners bring.

In short, oil companies are becoming less owners of an oilfield than service contractors to the real owners, the government. This is an entirely different business model requiring a flatter organisation with strong local subsidiaries who are able to make decisions and do business according to the peculiarities of the region. Thus far, none of the majors have shown much interest in restructuring along these lines, instead growing ever larger and centralising power with a handful of decision-makers cooped up in a gargantuan HQ back in the home country. I expect it is the mind-boggling revenues still being generated from legacy fields which gives them the luxury of ignoring how the industry is changing.

Share

Global Witness Tampering

This morning I received an email from an outfit called Global Witness. Let’s take a look:

All of the $4.9 trillion the oil and gas industry is forecast to spend on exploration and extraction from new fields over the next decade is incompatible with the Paris Agreement’s 1.5°C goal, according to new analysis by Global Witness.

All of it? I confess, when the signing of the Paris Agreement was being celebrated by world leaders, I didn’t realise it meant an immediate and total halt on global oil and gas exploration and production. You’d have thought someone might have mentioned it.

The report, Overexposed, published today, is the first to compare the latest 1.5°C climate scenarios used by the Intergovernmental Panel on Climate Change with industry forecasts for production and investment. It finds that any oil and gas production from fields not yet in production or development would exceed what climate scenarios indicate could be extracted and burned while still limiting warming to 1.5°C.

I’d love to see the equation they’ve used to derive global temperature changes from oil and gas production figures. Sadly, the link to their methodology (.pdf) doesn’t include it, or any explanation of how they’ve arrived at this conclusion.

ExxonMobil is forecast to spend the most in new fields over the next decade, followed by Shell. Together with Chevron, Total and BP these five oil and gas majors are set to spend over $550 billion on exploring and extracting oil and gas that is not aligned with the world’s climate goals.

Next up: Toyota stubbornly making cars while world demands jet packs.

“There is an alarming gap between the plans of oil and gas majors and what the latest science shows is needed to avoid the most catastrophic and unpredictable climate breakdown” said Murray Worthy, Senior Campaigner at Global Witness and author of the report.

Meaning, there is an alarming gap between oil and gas demand as expressed by its users and the quantity Murray Worthy thinks they should be using.

“Investors will rightly be concerned that despite industry rhetoric to the contrary, the oil and gas sector’s spending plans are so drastically incompatible with limiting climate change. This analysis should encourage the escalation of investor engagement efforts to challenge oil and gas majors to credibly align their business plans with the Paris goal. Blindly pushing ahead comes with huge financial risks for investors, either as a result of the transition to a low carbon economy, or as the devastating consequences of a changing climate stack up.”

That’s a matter for investors, is it not? I hardly think investors in the oil and gas industry are so dumb as to not be aware of two or three decades of climate hysteria. I expect a good few are piling in on the basis that if the likes of Global Witness get their way, there will be a severe shortage of oil and gas supplies in future allowing them to make hay. No, what Murray Worthy is saying is he disapproves politically of how investors are spending their money, but dresses his words up as concern for their welfare.

Global Witness’ report finds it is only possible to claim this investment is compatible with the Paris climate goals by using scenarios that assume massive carbon capture and removal will take place in the future. This is despite the fact that these technologies remain unproven at scale.

Which is pretty apt, given the technologies which will render oil and gas production unnecessary are also unproven at scale.

The industry is at a crucial turning point; capital investment has fallen by over a third since 2014, largely due to a slump in oil prices. Yet, investment is forecast to rise by over 85% over the next decade, reaching over $1 trillion a year. Two thirds of this is set to take place in new fields.

It’s almost as if investors don’t take you seriously, isn’t it? Now why could that be?

Major capex projects in new fields that are due to be approved over the next decade include US domestic shale expansion, the Vaca Muerta shale in Argentina, the Kashagan oil field in Kazakhstan and the Yamal megaproject in Russia.

The Kashagan field went into production in 2013; I expect he’s talking about the expansion project, which doesn’t make it a new field. Vaca Muerta has been in production since 2011, and I expect he’s also talking about expansion projects. He’s on slightly firmer ground regarding Yamal; production on the Yamal peninsula started in 2017, but the project I think he’s talking about – the development of the Kharasaveyskoye field – is yet to go ahead. However, that’s a Gazprom project, so nothing to do with the majors listed in the article. It’s therefore not surprising Global Witness and those with real money at stake are not on the same page here, is it?

Share

Worse than a crime

Yesterday I discovered via Twitter that Notre Dame cathedral in Paris had caught fire, and not long after this photo was circulating:

The reason 9/11 had such an effect, at least on me, was the visual impact of the towers falling in real time. It was surreal, and the next morning I woke up wondering if it really happened. The death toll was appalling, but it was watching the towers collapse on live TV which made it an event equivalent to previous generations’ shooting of JFK whereby we’ll always remember where we were when the news broke.

I felt a similar sensation yesterday watching the spire of Notre Dame fall, knowing things will never quite be the same again. It sometimes takes a lot to move me – I can walk around concentration camps and WWI trenches and not feel anything other than the wind – but the sight of a monument to western civilisation, over 800 years old and the survivor of wars, invasions, revolutions, plagues, and occupations, going up in flames left me incredibly sad.

It also left me angry. This should never have happened. Fires during construction and renovations are common, and renovation work recently started on Notre Dame. There are hundreds if not thousands of rules, regulations, standards, and best practices which exist precisely to prevent fires breaking out on building sites. I know this because when you do work on an oil and gas installation with hundreds of tonnes of pressurised hydrocarbons all around you, you pay attention to them. It seems someone working on Notre Dame didn’t. I doubt this was arson, despite the increasing number of arson attacks on churches in France, not to mention a priest getting his throat cut by Islamists.

I expect the investigation will find the cause was either someone not making his equipment safe before leaving for the day, e.g. he didn’t switch it off or put something hot on something flammable (in the offshore oil industry, someone must stand watch for an hour after work stops to make sure nothing spontaneously combusts), or it was an electrical fire. When renovation work is going on there are a lot of cables lying around, temporary junction boxes, and other equipment which gets bashed around and overloaded. That a fire risk is well known on such sites ought to have led those in charge to apply prevention and mitigation measures to 150% considering the importance of the building. I expect cost was one reason they didn’t, and I’d be willing to bet the modern managerial technique of loafing around in offices at the expense of employing good quality tradesmen and supervising them properly also played its part as well. I expect the investigation will state the technical facts of how the fire started and say little about organisational failings, especially if there’s someone important or a union involved. This is the modern way, an inevitable result of the utterly shameless being put in charge of a no-blame policy.

I also noticed what is probably a minority of morons on social media celebrating the destruction as just desserts for a hodge-podge of alleged sins on the part of the French including colonialism, antisemitism, slavery, and every other grievance they think they can make a buck out of mongering. A lot of them seem to be from the former French colonies, particularly Algeria. I’m not surprised by their remarks, but the question I have for those people wringing their hands is where did these attitudes come from? Who has been banging on about the evils of colonialism, Christianity, western civilisation, and European history for decades? Who have made whole careers out of telling non-Europeans they have been and continue to be oppressed, enslaved, and exploited by the evil white man? The answer is western institutions which have been captured by Marxists and other lefties who hate our civilisation, culture, and history and want the whole lot destroyed. I wonder, how many professors at the Sorbonne who this morning look across the Seine at the blackened, roofless masonry of Notre Dame perpetuated the mindset which is now upsetting them so?

I have no doubt Notre Dame will be restored, but there will be small but noisy campaigns for the money to be used elsewhere or the building replaced with something “more inclusive”. If you think I’m exaggerating, consider that a sizeable chunk of Britain’s ruling classes think ISIS butchers should be welcomed into Britain and given free housing and the western response to terrorist attacks is to arrest those who talk about them in an unapproved manner. The fire at Notre Dame is a tragedy because a wonderful monument to an incredible civilisation almost got destroyed. The greater tragedy is that the civilisation itself is almost destroyed, and few have the courage or desire to put the fire out.

Share

LGBThee

From Shell’s corporate website:

At Shell, we care about the diversity of our people because we believe that a fully inclusive workplace allows our employees to flourish and so allows our business to flourish.

When our employees excel, we excel. It’s for this reason that we are proud to support our lesbian, gay, bisexual and transgender (LGBT) staff, promoting equality for employees regardless of sexual orientation or gender identity.

Also from Shell’s corporate website:

Shell has been active in Brunei since 1929, when the first commercial oil find was made by the British Malayan Petroleum Company, owned by Royal Dutch Shell.

The Company was the forerunner to the present joint-venture company of Brunei Government and Royal Dutch Shell, Brunei Shell Petroleum Company Sdn Bhd.

Through the solid partnership between the Government and Royal Dutch Shell, BSP, Brunei LNG (BLNG), Brunei Shell Marketing (BSM), Brunei Shell Tankers (BST)/Brunei Gas Carriers (BGC) form the Brunei Shell Joint Venture (BSJV) companies which constitute the largest employer in Brunei after the government.

Shell Deepwater Borneo (SDB) is a 100% Shell Company that was established in Brunei as a result of Royal Dutch Shell’s acquisition of New Zealand based Fletcher Challenge Energy in 2001.

From The Guardian:

Brunei is to begin imposing death by stoning as a punishment for gay sex and adultery from next week, as part of the country’s highly criticised implementation of sharia law.

From 3 April, people in the tiny south-east Asian kingdom will be subjected to a draconian new penal code, which also includes the amputation of a hand and a foot for the crime of theft. To be convicted, the crimes must be “witnessed by a group of Muslims”.

It was a directive of the Sultan of Brunei, Hassanal Bolkiah, who is one of the world’s richest leaders with a personal wealth of about $20bn (£15bn) and has held the throne since 1967. He described the implementation of the new penal code as “a great achievement”.

So Shell demonstrates a firm commitment to LGBT rights via ultra-woke initiatives in places where minorities have been treated without prejudice for at least a decade while they bankroll a monarch who decrees homosexuals must be stoned to death.

Similarly, Total caved in to a shakedown by Accenture and signed (pdf) an LGBT charter along with a whole load of other French companies. Meanwhile, here’s their CEO and other senior executives signing a deal with the Iranian government:

Here’s some news from Iran:

The Islamic Republic of Iran publicly hanged a 31-year-old Iranian man after he was found guilty of charges related to violations of Iran’s anti-gay laws, according to the state-controlled Iranian Students’ News Agency.

The unidentified man was hanged on January 10 in the southwestern city of Kazeroon based on criminal violations of “lavat-e be onf” – sexual intercourse between two men, as well as kidnapping charges, according to ISNA. Iran’s radical sharia law system prescribes the death penalty for gay sex.

While oil company HR departments demand acceptance and celebration of LGBT lifestyles from their staff, their bosses are complicit in propping up the most murderously homophobic regimes on earth. But then moral codes have always been for the plebs while the priestly caste gets a pass, haven’t they?

Share

Masters of Business Awareness

So now I’m two thirds of the way through my MBA, not counting the dissertation. Have I learned anything? Yes, I have. I wrote previously about how useful I found the class on statistical analyses, but I’ve also now got a good appreciation of accounting and finance. By way of a benchmark, I didn’t even know the difference between accounting and finance before, nor sales and marketing for that matter. Now I probably haven’t learned much more than the basics, but it nevertheless allows me to look at companies quite differently. I also understand a lot more of the terminology which gets used in financial reporting.

I’ve also completed a good class on strategy, something I didn’t think I’d find very useful for some daft reason. I found the difference between commodities and other goods interesting, as well as the different strategies companies pursue in attempting to gain competitive advantage. We did a lot about competitive advantage, and how some companies do well and others fail. Underpinning all of this was a Capsim strategy simulation we played over the term which involved selling electronic sensors while balancing R&D, sales and marketing, production, and financing. I was skeptical at first but once I’d figured out how it worked I got stuck right in, and I came out the other end knowing an awful lot more about competitive advantage and how commercial enterprises work at the strategic level. Alas my team didn’t win the competition; we had in our class a young Ukrainian who was extremely gifted at figuring this stuff out and he left us for dust, but we easily came second.

What this has shown me is how unusual the oil industry is. For a start, there’s just so much money kicking around. I’m studying cases regarding the financing of investments of around $5-10m, which in Exploration & Production represents the money wasted because a manager didn’t want to change a wrong decision because he’d look bad in front of his boss. The first big oil project I was involved in, Sakhalin II, started off with an $8bn budget, it rose to $12bn and eventually came in around $20bn. Nobody really knows. I don’t know what the original budget of Kashagan was, but the main dispute now is whether the final price was $50bn or $80bn. Again, nobody really knows. If any other industry outside of government spent money this way, they’d go bankrupt within weeks.

The oil industry is also unusual in that the main players are partners as well as competitors. In any oil and gas development there is one operator and several partner companies. In the North Sea ExxonMobil often had an equal share of a development alongside Shell, who would operate the thing. This is done to reduce risk and make raising capital easier, but it’s equivalent to Boeing and Airbus teaming up to develop a new fighter for the US Air Force. When we studied flat and tall corporate structures and the characteristics of each, it was obvious which category my former employers fell into. I knew this already of course, but I didn’t realise quite how hierarchical oil companies are compared to other major corporations (one or two readers might find it interesting that the companies most often used to compare tall versus flat organisations were IBM and Intel).

The other thing which struck me about the oil industry is how unbelievably slow and bureaucratic the decision-making process is. In my previous place of work, decisions would take months and sometimes years, involving endless meetings up, down, and across the organisation. There may be good reasons for this, but most commercial operations don’t have this sort of time to waste. During one of the seminars I spoke to a chap who worked for a big pharmaceutical company in Switzerland, and he showed me the app he uses for processing and submitting his expense claims. He scans the receipts, clicks send, and it’s automatically approved within hours. Hotel bookings, flights, and ground transport work much the same way. If someone brought that into an oil company they’d summon witchdoctors to cast out the demons within. Booking tickets and processing expenses in my last place of work involved dozens of people, umpteen signatures, and half a forest for each trip.

Sixteen years in the oil industry has sheltered me from a lot of things, and my MBA is making me see the world in a different way. I’m also beginning to sniff out potential opportunities here and there. That was the primary purpose of doing it, of course.

Share

Purgery

When you work in the oil and gas business, particularly if you’re around live plant or involved in construction, safety is dinned into you with all the subtlety of Trump running commentary on the Mueller investigation. It’s so effective that when you wander outside the oil and gas environment you wonder why people are deliberately trying to lose an eye or commit suicide. The industry takes safety seriously because 1) hydrocarbons are phenomenally dangerous and 2) unlike other industries, they have plenty of money.

One of the things people involved in maintenance understand is the importance of purging vessels. If you need to do some work on a tank, separator, or drum that normally holds hydrocarbons you first empty it, then you purge it with nitrogen. Then when you open it you use an ultra-sensitive gas detector to make sure there’s nothing poisonous, flammable, or explosive left inside. I don’t know where the following video is from other than it’s Chinese and I’m not entirely sure what happened, but my guess is whatever he was doing ignited residual gas in the vessel.


Be like Stalin: purge.

(Via Obo)

Share

Unforced Errors

This post sort of follows on from this one, and describes much the same problem.

A year or two into my assignment doing weight estimates, we had a big re-organisation which meant I was dealing mainly with offshore facilities and more closely involved with cost estimations (rather than purely weight estimations). One of the principle ways the cost of a facility was estimated is to take various parameters – total liquid processing capacity, oil production rate, gas processing rate, etc. – and use that to work out the topsides weight. This is what they did, and as far as I know they still do.

One day we invited an American chap to visit us from a company which specialises in the design and operation of certain installations. We wanted his feedback on previous work we’d done with him, and his advice for future projects. He was very open, and I found the meeting fascinating. He highlighted the various technical requirements unique to our company which made our installations more expensive than they ought to be, with other clients happy to accept less stringent requirements or use industry standards. He went into detail on this, and in several instances it was the case that technology had moved on and our standards hadn’t yet caught up. For example, if you want to send an intelligent pig down a line you’d have to put 5D bends in (i.e. the bend radius is 5 times the pipe diameter), but nowadays the pigs can generally handle 3D bends. Our standards still required 5D bends, which take up a lot more space in a crowded facility. That was just one example of several, which as an engineer I found very interesting.

Not so my colleagues. After the meeting I raised these points as possible areas in which we could save costs, and the response was:

“Oh, that was all bullsh*t, he was just telling us that to try to get the next contract.”

Not for the first time has an expert in a particular technical field been invited into an oil company to share knowledge and been treated like he’s the dumbest one in the building.

Anyway, one of the things the American chap said was his company had found no relationship between the liquid production rates and the facility topsides weight. There were just too many other variables which affect it, such as the degree to which you want to remove certain contaminants. He even said his company had teamed up with a university to research this relationship, but after a couple of years they’d given up. What this fellow said effectively consigned our entire estimation methodology to the dustbin, because it relied entirely on a perceived association between production rates and topsides weights. This either went straight over the heads of the assembled staff sat in front of him, or they chose to ignore it. Either way, nobody mentioned it again.

Just for fun, once I’d been taught statistical analysis techniques last semester I ran some figures to see whether the methodology we’d been applying back then was mathematically sound. It turned out there was a correlation between equipment weight and topsides weight, but it was a lot weaker than I’d expected. But more importantly, there was no association between production rates and equipment weight, or indeed between any of the parameters we used and weights. So the American was right, then.

Now had I known these techniques when I still worked there, and demonstrated to those in charge of the methodology that we shouldn’t be assuming an association between X and Y when none exists, they’d have said:

“This is the methodology we are using. Your job is to follow it without asking questions.”

In fact, a short while before the reorganisation someone suggested I get involved in cost estimations and apparently one of the managers said:

“Oh, we don’t want him, he’ll just find things wrong with our methodology.”

Major corporations, people. Next time you hear about something like this or this, you’ll know how they happen.

Share

Don’t mention the flaw!

Once upon a time I was posted to a department in an oil company which dealt with the early-stage designs of new installations, much of which was geared towards providing enough information for a cost estimate to be carried out. To a rough order of magnitude, the cost of a new offshore installation (either floating or fixed to the seabed) can be estimated from its weight. Keeping things simple, the weight of an offshore facility comprises Equipment Weight, Piping Weight, Structural Weight, and Others. If you have enough data, it is theoretically possible to work out the total weight of a new offshore installation by taking just the Equipment Weight and applying various ratios from similar, existing facilities. Most large engineering companies do this in order to obtain order-of-magnitude weights and cost estimates, but it is very much a finger-in-the-air approach which, at the early stages of a project, is fine.

The problem with my new department was they did the equivalent of dividing 11.3 by 3.4 and writing the answer as 3.32352941. Any GCSE science or maths teacher will tell you the answer to any calculation cannot be more accurate than the initial input data. But when we did estimates using data with an accuracy of ± 30%, we’d make comparisons of estimates that were within 10% of each other and propose weight savings of 5%. If you think it’s just journalists who are innumerate, be aware there are engineers with the same affliction working in large oil companies.

Then things got a whole lot worse. Weight ratios apply to offshore facilities because they are designed as a single unit relatively unaffected by their location (I’m talking topsides or floaters here, not the jackets or other support structures). I’m simplifying massively, but the point is that the weights of floating and other offshore facilities are not primarily driven by where they are installed. By contrast, the cost and complexity of onshore installations is enormously impacted by topography and geotechnical conditions under the soil. As you can imagine, building a facility on flat, firm ground is a bit easier than doing so on the side of a granite mountain or in a marsh. Civil engineering accounts for approximately 30-40% of the cost of constructing an onshore oil and gas installation, mainly grading the site, bringing in aggregate and compacting, and building the vast underground networks of pipes and cables needed to run the thing. This is why the first things you do when you’re thinking about building an onshore plant is the topographical and geotechnical survey; it’s sort of hard to do anything without it.

But I worked with very clever people, and they came up with a way of estimating the costs of an onshore facility regardless of where it was located. Insofar as topography went we could just assume it was flat, and soil conditions could be ignored or data from a project on another continent used instead. That soil conditions can vary dramatically across a hundred metres didn’t seem to matter. Furthermore, we could use ratios to work out the weights like we did offshore. Now I spied a problem with this. Offshore, on a global basis, there is probably a relationship between Total Equipment Weight and Total Structural Weight; all equipment on such facilities is supported by structural steel, after all. But onshore equipment is generally placed on a concrete plinth sunk into the ground, the size of which is driven by the soil conditions and equipment weight. The structural steel supports some equipment and a lot of piping and cables, but it does a very different job to that on offshore facilities. In many instances, the structural steel around a piece of onshore equipment is negligible. In short, on an onshore plant there is no ratio from other facilities which can be used to estimate structural weight using equipment weight. But here were were, applying the same methodology as if it could.

Having some experience on onshore sites, I began to use my noggin a little. In one estimate, I ascertained that a vessel had no structural steel at all: it rested on its own legs and there was no maintainable valve on top which would need an access platform. But two managers queried this: they asked how the structural steel weight could be zero. I said it was because there is no structure associated with this vessel. They said this must be wrong, and I should apply a ratio of 30% vessel weight. So I asked them what structure they thought I was missing. They couldn’t say, but they told me to add the weight in, which came to several tonnes.

A little later, they got an intern with no post-graduate engineering experience to create a formal procedure for estimating the weights of onshore facilities, convinced that from such data the costs could be derived. They then passed it around all the engineers for comments. I noticed that it did not consider many components of the underground networks, which as I said comprises a huge portion of the costs. The most glaring omission was the firewater ring main, which is big, expensive, and common to all onshore oil and gas facilities. The reason this wasn’t included was because it would be designed “later”, which I found actually meant “nobody here knows anything about firewater ring mains so it’s best to pretend they don’t exist”.

I’d only been in the department a few weeks and I naively thought I’d be being helpful by pointing out, as I have done above, why this new methodology drawn up by the intern was fatally flawed. I drafted a comprehensive email with examples and explanations and sent it to my boss and the head of department, whose brainchild this new methodology was. A few days later I was called into an office where both of them were waiting and told to close the door. Their talk with me can be summarised as follows:

“We have read your email, but the decision has been made to adopt this methodology going forward. Your job is to follow it without asking questions.”

This was probably the first time it dawned on me that in many corporate departments results are meaningless, and all that matters is people obediently follow the process. I fought it for about a year, then just got with the program and pumped out absolute garbage which got wrapped up in more garbage and presented to senior management right up to the CEO. It didn’t take me long to work out whatever rubbish we were generating was not the basis on which decisions were getting made – the company wouldn’t be in business if that were the case – and the entire process, which cost millions of dollars, was merely to keep people employed. I once remarked in the wake of the oil price crash that if the company wanted to cut costs they could get rid of our entire department and employ a child to roll dice every time senior management wanted figures. That went down about as well as my critique of the estimation methodology.

The experience left me wondering how much of this sort of thing goes on in major corporations with names you’ve heard of. Quite a bit, would be my guess.

Share