Murnaghan Interview with Lord Browne, Chairman of L1 Energy

DERMOT MURNAGHAN: For the first time in eight years the oil producing nations which make up OPEC agreed this week to cut production. Now in theory that could see an end to fairly low oil prices, good news perhaps for Nicola Sturgeon and the North Sea oil companies, maybe bad news for drivers and inflation and things like that. I am joined now by Lord Browne, who was the Chief Executive of BP for over a decade and he now runs the oil company, LetterOne, so you know a thing or two about this. Good morning to you, Lord Browne. I said in theory, we have got this – well within the last eight years, historic OPEC deal to limit production, will it actually happen?

LORD BROWNE: Probably, yes. When things really get bad, OPEC does something and it’s in particular when the leaders of the OPEC nations get together so the answer is probably, you can never tell, this is a voluntary agreement and like all voluntary agreements it takes everyone to abide by it but I think the important point is, the stress in these oil producing nations has been extreme and they are running out of the capability of keeping their regimes probably in a stable form and that’s actually important for all of us.

DM: And that actually even goes for the big daddy of OPEC, it goes for Saudi Arabia?

LORD BROWNE: It does, they are clearly finding at least a short to medium term problem in the amount of revenue they are generating so this is important for them. Actually it creates an important amount of exciting activity in the oil industry which will allow supplies around the world to still keep coming out.

DM: Well as I said there also in the introduction it is good news then particularly for more expensive areas like the North Sea, then exploration perhaps becomes more economically viable but not great for the consumer though, and I put that mildly.

LORD BROWNE: Well this is not a huge increase in the price and it is not really that good news for the North Sea which needs a tremendous increase in price to keep going. Where the excitement is of course is in the United States, in what’s called shale oil, in the permium, which is probably the most exciting thing that’s happened to the oil industry for the last 30 years, very exciting indeed and that takes actually not very high prices to keep going and that of course is the balance.

DM: But isn’t that one of the problems of the OPEC decision, in part it’s to deal with issues like that, the energy self-reliance that the United States, that North America is developing there but it benefits them as well at the same time if overall energy prices rise.

LORD BROWNE: It absolutely does but the world is not made just of the United States and Saudi Arabia and Russia, it’s got lots of other places it needs to produce oil from and it needs a reasonable price to make sure it comes out at the right level over the right period of time. Demand for oil still is pretty strong and will stay so I think for the next 10 or 15 years although anyone in the industry has to think that things will change because we will get better and better at using less fossil fuel and being much more careful with what we’re doing to humanity.

DM: So this is managing decline but on the deal itself, who should we watch out for? It is usually the Russians, perhaps the Iranians as well, when the domestic pressures become so hard they may have bit the bullet for four, five, six months and then they see the revenues dropping and dropping, then the incentive is there at whatever price to pump some more oil.

LORD BROWNE: Always watch Saudi Arabia and secondly, watch Russia. The big three in the world are the United States, Russia and Saudi Arabia and actually they have always been the big three. What they do changes the way we will have oil supplied to us.

DM: There is this point is being oft made about OPEC, it’s so big and powerful you can’t do anything about them, it’s a cartel with other smaller cartels right here in the City of London for instance when it comes to Libor fixing and things like that, there are criminal actions. Why should we laud this deal?

LORD BROWNE: Well we shouldn’t laud them, what we should do is recognise that they are doing something for the stability of a whole set of nations in the world. Of course it’s a cartel, it has been around a very long time but in some ways it is measuring and balancing the supply of oil against the demand.

DM: So how would you tell somebody who is in the UK, somebody who is going to get in their car and it is going to cost them £5, £10, £20 more to fill up a tank of petrol, how do you justify to them that this is actually good for global stability and it matters to the UK?

LORD BROWNE: Well I certainly won’t justify higher prices for the consumer but there are many more things than the price of crude oil. The price of sterling is a very big factor and that is causing most of the change in price and secondly, of course most of what we pay for a gallon of petrol, a litre of petrol here goes to the government, it is mostly to do with tax, it is not to do with the input costs.

DM: And that leads me to the Brexit effect certainly on the depreciation of sterling. Your view overall on the government’s handling of this, no running commentary, still no clarity about what is being asked for. The old adage is businesses need some certainty whichever way it is.

LORD BROWNE: They always do and I think that is the big thing. People would like to see some certainty and some understanding of the implications of how we negotiate against different businesses, whether it is the loss of airline slots, whether it is the change of exchange rate, whether it is a change in trade agreements. I think most business is optimistic, you have to be in business, if you’re not optimistic why be in business but you have to be realistic as well. And so I think most people will say common sense will prevail, we will find a way through at the lowest possible cost but there will be a cost.

DM: And what do you make of the change at the top of the Conservative party in terms of its attitude now towards business? You think back to the Cameron/Osborne years and you’ve got to say pretty business friendly overall, Theresa May has been taking a different tack.

LORD BROWNE: Oh no, I don’t see them being particularly business unfriendly. I think there’s always a very unstable relationship between government and business, business is looked at I think by the general population with great suspicion, they’re not trusted. CEOs are some of the least trusted people in the world and the reason people think like that is that they think that business just trousers the money, literally, takes the money and puts it away. Great business has got to recognise they need to be on the agenda of people – of their customers, of their stakeholders, of their communities, they set the agenda and if they don’t...

DM: You talk about unpopularity, well politicians are pretty down that list too, are they just trying to deflect some of that unpopularity?

LORD BROWNE: I think most people go straight to ‘Let’s have more regulation, let’s have something to control people’. Actually I think we have probably got enough in the corporate governance area, what we need is to apply it much better. We need to apply it better and companies need to recognise that they need to keep winning trust every day, they can’t say well we’ll leave it to somebody else, we’ll just do our own thing, being in business means you need to build a reservoir of trust and you have to do that every day. I’ve seen it myself and when you break that trust, you have a problem.

DM: A quick thought on Corporation Tax, the noises you are hearing from government about going way, way down, however low it takes to be the lowest in the G20.

LORD BROWNE: Well Corporation Tax reduction is very important, it is a secondary tax and one which reduces the basic wheels of commerce so lower taxes are a good thing for corporations provided we of course have enough revenue for the nation as a whole.

DM: Lord Browne, must end it there, thank you very much indeed for coming in, very good to get your thoughts.