Saving oil from troubled waters

The amount of research they have done, and continue to do, to persuade the Government that the current North Sea tax regime is not ''soft'' is perhaps a measure of the concern of Fudge, the chairman, and his fellow members of the Offshore Contractors' Association.

For months, they have warned that 50,000 engineering, construction, and service jobs could go in the next five years; that 120 out of 143 planned projects could be at risk; that their industry has been responsible for 20% of the country's total annual industrial investment; and that it provided

#15bn of value added to the UK economy in 1996.

They can tell every MP in the country exactly how many of their constituents rely on the industry for their employment.

They can pinpoint that a 50% cut in business would mean a third of all supply companies facing closure or laying off two or three out of every four workers, and that in Grampian, if oil and gas activity were reduced by a third, unemployment would rise by 4%.

The Government will soon make clear whether it believes them.

Sid Fudge has been in the industry since the early 1970s and has seen it develop into one of the industrial successes of the twentieth century. He is determined to fight on behalf of his own company, Kvaerner Oil and Gas, and his colleagues, to ensure a healthy future in the 21st century.

''We now have more than 500,000 people directly and indirectly employed in this industry in more than 6000 companies, and this review could impact on the whole of this broad industrial base,'' he says, dropping in a couple more statistics to back his case.

''Some of the small suppliers may not realise today that a significant proportion of their product actually ends up in the North Sea - so if the North Sea turns down, indirectly their products are going to be affected and that is going to have a material effect on a company that doesn't necessarily see itself directly linked into the oil and gas industry.''

He is careful not to criticise the

Government - at least, not yet - and actually praises it for encouraging

the consultation.

''I think the Government is fully aware of the facts and the implications, and understands the arguments. Whether it thinks they are the right arguments, I cannot answer.

''At the moment there are very clear signs of a downturn in activity. There is a very dramatic decline in the number of exploration wells being drilled, the start point for any activity, and there are a number of projects already on hold.

''While you cannot be specific,

there is a dampening down of the industry generally.

''The uncertainty is already being fed into oil company thinking and a consequence of that is a downturn in activity.

''One of the barometers of the industry is the duration of rig contracts, which are getting progressively shorter because oil companies are making shorter and shorter commitments at this stage.''

Fudge believes that rather than discourage development - as a tax rise will do - the Government should be giving increased support to the industry, in order to let it gather in more tax from a bigger pie.

''Governments over the years have spent millions to create jobs and, in recent times, not very successfully. There has been no Government investment in developing this industry.

''It is one of the success stories of the industrial economy. It is now largely dominated by Europeans and European technology. It has tremendous export potential. It has technology which is at the forefront of the industry and it has onshore application as well.

''International opportunities are emerging now and a more beneficial way to create wealth for the Exchequer and the nation is to encourage the market to grow through exports.''

Another statistic at his finger-tips is that of the 382,000 jobs the industry now supports only 31,000 are with oil companies. ''Oil companies will downgrade activity in the UK, limit their spend in the UK, and because they are mobile, they will go elsewhere,'' he warns.

''Contractors don't have the same flexibility. We can take our expertise and our technology, but we can't move large fabrication yards with great ease and we can't readily transfer all the maintenance expertise that sits here in Aberdeen, and is designed to deal with the domestic market.''

''There is a serious danger of accelerating the decline of the North Sea because if we do not encourage com-panies to invest here, then we will

not extract the remaining hydrocarbons out there.''

Many of the developments today are only possible because of giant technological strides made in recent years, which have transformed marginal fields into realistic propositions. Much of that technology has been developed by British companies.

''If you put the clock back 10 or 15 years,'' he says, ''you'd find nothing but American accents, stetsons, and stencilled boots; much of the technology was American.

''Now that pendulum has swung very firmly to the European side.''

He warns that by the end of this

year or early next year, work in the UK's fabrication yards will have virtually all run out.

Thanks to foreign orders, his own company is one of the few with orders into the millennium.

''If no new capital project contracts are going to come down the line, then the yards are relying very firmly on export work and these yards are sited in places of high unemployment.''

A final statistic which is vital background to the situation is that the industry's arguments against a tax rise were formulated at a time when oil was selling for $18 a barrel. Towards the end of last year that dropped to $14, and then slipped even lower before stabilising again at around $14.

That in itself would be enough to push some fields back from being feasible to being uneconomic.