New Oil from old Fields

Last week I was in Ţicleni in Gorj county to look at a major new British investment in Romania’s oil industry. Petrofac is one of the UK’s main suppliers of services in the oil industry, based in Aberdeen in Scotland. As of November 2010 it has taken a responsibility from Petrom for operating and developing theŢicleni oil field, an extensive deposit of 126 km², first exploited in the 1950s.

This is a new model of contract in the industry. Petrom retain the title to the oil reserves and sell the oil that is extracted, while Petrofac invest in new drills to improve the purchasing of the field and are paid for the quantities they can produce.

Petrofac are already showing impressive results in the short time they have been operating the field. By bringing new technologies to the existing wells and drilling some new ones they have been able to boost oil production. They have also introduced new working practices, in agreement with the unions, developed new protocols for health and safety, and created new jobs, increasing the workforce to 960 employees (making Petrofac one of the biggest British employers in Romania). It is these innovations in working practices, with a clear focus on efficiency, as much as the innovations in drilling methods and technologies that give Petrofac confidence that it can meet the demanding targets for increased productivity that its contract demands.

It is sometimes said that Romania’s competitive advantage lies in the relatively low cost of labour. I don’t see it that way. What matters in business is not the cost of labour, but its productivity – the output achieved for each unit of cost. I have seen British firms make remarkable gains in productivity in Romania – because of the readiness of Romanian workers to adapt to new practices and their ability to innovate on the shop floor to find new efficiencies in operating procedures.

I am delighted that Petrofac have arrived in Ţicleni and are making new investments and bring new employees. I am sure they will ensure Romania makes the most of its national oil reserves. I also suspect that the operations in Ţicleni will serve as a model for similar contracts in mature fields elsewhere.