Search for “Cambo” on Royal no-longer-Dutch Shell’s website, and the answer comes up: “0 results.” Please forget that we ever thought of exploiting this oilfield, is the unspoken message. Of course, a little North Sea prospect hardly registered on the Shell scale, even before the board crumbled under pressure and pulled out. The calculation of too much political pain for another marginal development shows how oil companies are mesmerised by the destructive antics of a tiny minority of fanatics who know they are right and everyone else is wrong.
Shell might just as well have admitted as much. Its comment that the economics are not strong enough at present is farcical. The oil price has risen by a half and gas prices have trebled in the last year, and there was no hint last June, when the formal development plan was submitted, that Cambo might not be a commercial proposition. Shell’s majority partner in Cambo, Siccar Point Energy, is whistling cheerfully about future development, but without Shell’s technological clout, Siccar may lack the expertise, and in the current climate any publicly listed oil major would hesitate before stepping up.
It’s not just the oil companies that are running scared. The Offshore Petroleum Regulator for Environment and Decommissioning (the clue is in the name) is as independent as all other regulators are in dealing with this shameless government, where short-term popularity over-rides all else. Any regulator under political pressure can find more reasons why it’s essential to spend more for health’n’safety, while the lack of explicit UK government support for Cambo is surprising only because it would have presented an opportunity to put one over Nicola Sturgeon when she turned against the project.
Such is the background as Britain blunders towards a cold, high-cost energy future. The immediate crisis is in gas, where a combination of below-average early winter temperatures in continental Europe, a lack of wind in the North Sea, and reserves at their seasonal lowest for eight years is ensuring that what looked like a spike in prices may turn out to be a plateau. It is unlikely that President Putin will feel moved to increase supplies of Russian gas – and some observers reckon he can’t anyway, for technical reasons.
The UK has no reserves to speak of, and retail companies will be obliged to keep paying up, ensuring that more of them fail, thus raising the burden on those that remain, who can pass it on under the rules. When the next price cap is fixed, the impact on domestic prices will be dramatic. It will come in just as pay packets are being docked by the rise in National Insurance payments next April.
More state intervention to soften the blow would seem inevitable, regardless of the baleful impact on the public finances. At about the same time, it is a racing certainty that some of the failed energy companies will be revealed as frauds, mechanisms for gathering capital by direct debit and paying it out to owners who have disappeared.
The longer term picture in the UK is of the nation’s hydrocarbon resources being sacrificed for a negligible reduction in world output of CO2, more reliance on imports from unsavoury regimes and less employment at home, all in pursuit of the myth that heat pumps, insulation and renewables can replace oil and gas. Perhaps we shall all be powered by moonbeams instead. Cambo is an indicator, not a game-changer, but if Siccar can find partners for its project that are not scared of the Extinction mob, we should be grateful for small mercies.
For the managers, not the owners
Why do fund management groups merge? The stated objective is to offer more, and by implication better, expertise in understanding markets and picking stocks. If 20 analysts is good, then surely 40 analysts is twice as good! If only life was so simple. The record shows that mergers are generally followed by corporate blood-letting, internecine strife or just miserable performance.
Exhibit A here is Staberdeen, the shotgun marriage of Standard Life and Aberdeen Asset Management, which after internal upheavals emerged as Abrdn. The shortage of vowels in the name might have been solved with the purchase of fund administrators ii, but sadly there seems to be no intention to call the new company Abirdin.
Other miserable marriages include Henderson and Janus, although Jupiter’s merger with Merian might do better, despite much guff about heritage and innovative management. As is traditional, some of the funds will be renamed, thus making it harder for long-term holders to keep track of their investment.
This week’s get-together is Liontrust’s takeover of Majedie Asset Management, itself no slouch in hoovering up other managers, despite emphasising its “boutique” nature. The deal is apparently “a compelling cultural and strategic fit” which will be a comfort to the owners of the £5.8bn that Majedie manages. They might prefer good performance from the funds, but it will be impossible to work out what difference, if any, this compelling fit makes.
So what’s the answer to our question? Simple, really. Fund managers, and their managers, are rewarded with a percentage of the money they control, so the bigger the sums, the bigger the rewards. Bigger groups can afford more salesmen and promotions, and intermediaries will always seek the comfort and perceived lower risk of the bigger funds. Growing by outperforming the benchmark is hard, slow and uncertain. It’s so much easier to bring in new capital.
Neil Collins and Jonathan Ford have today launched a podcast, A Long Time in Finance. Go to the App store or Spotify to find out why it’s not easybeing green.
