Oil and gas production will continue in the North Sea for decades, the chairman of Shell UK has forecast.

By Andrew Cave: 5 August 2013

Ed Daniels says in an interview in The Daily Telegraph that the UK arm of Royal Dutch Shell, will continue to have a major presence in North Sea production, despite suggestions by commentators that the larger companies will wind down their activities, leaving the area’s mature oil and gas fields to niche specialist players and sovereign wealth funds.

“There’s a misperception that oil majors, Shell included, are not particularly interested in the North Sea,” Mr Daniels said. “Actually, that’s just not true. We at Shell are a big North Sea producer today, representing 14pc of UK oil.

“We’re investing £2bn a year in the North Sea, either in new developments or refurbishment of existing activities to re-life them for the next 10 and 20 years. We see that there is a material presence for Shell in the North Sea for years to come. I think the North Sea as a province has decades of activity.”

His comments came as new research showed that 40pc of companies in the North Sea produce no oil. According to a study by advisory firm Hannon Westwood, of the 131 companies operating in the area, 55 have no reserves. The North Sea is set to produce just 1.5m barrels a day this year, a record low. At its peak, it produced 4.5m barrels annually.

However, Mr Daniels said Shell is making investments that are “20-plus years in duration”. To encourage investment, he stressed that the UK needs a stable tax regime. “The 2011 raid on taxes was a real disappointment and very destabilising for long-term investments in the North Sea,” he said. “I do believe that the Government has remedied that.”

He also raised concerns about the Government’s immigration policy, saying it was vital that universities are able to bring in talented students from overseas so companies can hire sufficiently skilled graduates.

“It does touch a little on the well rehearsed debate on immigration. For us it’s about making sure the universities are allowed to bring in the students to bolster capability around innovation,” he said. “We’ve made our views on that clear to the Government.”

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Ed Daniels: ‘We see a presence for Shell in the North Sea for years to come’

Shell UK chairman urges stable tax regime as he worries about the UK economy, eurozone and bringing overseas staff to Britain

Ed Daniels wants to set something straight. “There’s a misperception that oil majors, Shell included, are not particularly interested in the North Sea,” says the chairman of Shell UK.

“Actually, that’s just not true. We at Shell are a big North Sea producer today, representing 14pc of UK oil.

“We’re investing £2bn a year in the North Sea, either in new developments or refurbishment of existing activities to re-life them for the next 10 and 20 years.

“We see that there is a material presence for Shell in the North Sea for the years to come. I think the North Sea as a province has decades of activity.”

There’s a proviso, of course. Oil and gas is a long-term business and the £10bn tax grab in the 2011 Budget led to warnings that the North Sea oil industry would reappraise investment decisions.

Last September, Chancellor George Osborne sweetened the pill with tax breaks to encourage investment in older oil and gas fields. However, Daniels wants to make clear the rules of engagement on the issue.

“We’re making investments today that are 20-plus years in duration,” he says. “For us to have the certainty that those investments are going to pay out for our shareholders, we need a stability in the tax regime and the 2011 raid on taxes was a real disappointment and very destabilising for long-term investments in the North Sea.

“I do believe that the Government has remedied that. There’s the brownfield allowance and allowances around high-pressure and high-temperature fields, so the Government is putting the measures in place.

“When you’re investing for such a long period of time, if you don’t have the confidence in the stability of a taxation regime, it just becomes impossible for you to make those long-term commitments, which are absolutely critical for the vibrant investment we all want in the North Sea. We’ve made that absolutely crystal-clear to the Government.”

Has Shell UK and its Anglo-Dutch parent Royal Dutch Shell threatened to take British jobs and investment elsewhere if it doesn’t get enough UK Government support?

Daniels smoothes that question away with a line about threatening people not being a great negotiating strategy, or a good way to deal with one of the group’s most important stakeholders.

Shell does hold a great deal of negotiating power, however, being one of the largest corporation taxpayers, as well as a significant collector of VAT, petroleum revenue tax in the North Sea and fuel duty.

Shell has other troubles right now. Last week, Royal Dutch Shell unveiled a 60pc drop in second-quarter profits to $2.4bn (£1.66bn) due to a $2.1bn write-down in the value of its shale oil and gas assets in North America and deteriorating security in Nigeria.

In May, investigators from the European Commission came calling at Daniels’ London office as part of as an inquiry into allegations of price-rigging in the oil market.

He was away at the time and is not keen to talk about it, stating only that Shell is co-operating fully with the investigation. Shell’s outgoing chief executive, Peter Voser, has said Shell has “nothing to hide”.

Daniels is more interested in chatting about other challenges of Shell’s UK business, which employs 6,500 workers, processes 35pc of the UK’s gas and includes the headquarters of Royal Dutch Shell’s downstream, treasury and global trading businesses. Globally, Royal Dutch Shell employs 92,000 people.

He’s concerned about the UK economy. “It’s fragile,” he says. “I’m pleased to see positive signs. We’re seeing a little bit more in terms of business confidence but I don’t think it takes much to knock it. There isn’t a robustness yet to the recovery.”

Europe clearly also remains problematic and Daniels admits that Shell is “troubled by how flat some of the really big European economies are”. “The eurozone has come out the intensive care phase,” he says, “but you couldn’t accuse it of being healthy.”

Then there are the difficulties that Britain’s immigration policies bring to importing skills and experience from overseas.

Daniels says part of the answer to UK oil and gas industry skill shortages is keeping schoolchildren, particularly girls, engaged in science, technology, engineering and mathematics and to encourage them to progress to degree level.

However, he adds: “The ability of universities and companies to bring in talent from around the world is important.

“It does touch a little on the well-rehearsed debate on immigration. For us it’s about making sure the universities are allowed to bring in the students, the PhDs and the researchers to bolster capability around innovation.

“It’s about enterprise and companies being able to bring in the right talent, if they can’t find it locally, to be able to progress innovations. We’ve made our views on that clear to the Government. Getting the talented 10-year experienced chemical engineer is just very tough at the moment.

“In the oil industry, we have a huge bulge of retirements coming up and it is going to be a challenge in terms of how we recruit sufficient talent to meet the challenges of keeping the lights on, driving the world’s energy system, addressing climate change and decarbonising the economy.”

Daniels cites Shell’s support of renewable energy projects, including its “Shell Springboard” awards scheme to encourage entrepreneurs in low-carbon energy technology. This year’s winner was Vantage Power, a firm developing diesel-electric hybrid technology that can be retro-fitted to double-decker buses.

“There are very significant energy challenges facing the planet,” says Daniels, “with projected growth of the global population from 7bn to 9bn by 2050 meaning that the world energy supply is going to have to double by then. At the same time, we have this enormous challenge around carbon change.

“There are 1m people employed in the UK in small and medium-size enterprises around low carbon technologies, which is as big as the financial sector.

“In the UK, the low-carbon technology economy is a £120bn market and globally it’s a £4 trillion market by 2015. “Our research shows that these SMEs are twice as likely as other SMEs to have export customers.

Green technology is one of the sectors the Government is trusting to power Britain’s growth. Does Daniels think it can meet this target? Daniels admits that bank funding for SMEs remains a “challenge”.

“The Government is working on that through various schemes to try to unblock funding for SMEs,” he says. Small businesses will be hoping Shell’s continuing muscle in the UK economy can help produce some tangible improvements.
Ed Daniels CV

Job chairman of Shell UK.

Education masters degree in chemical engineering from Imperial College, London.

Career joined Shell in 1988 and has worked for the company in London, Singapore and the US.

Other roles Shell executive vice-president of global solutions downstream, board member of the Institution of Chemical Engineers and member of the CBI President’s Committee.

Family married with three daughters.

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