Skip to Content

Any other business

Why cheap oil could mean a Labour victory

Plus: Speak up, Stefano Pessina; and a bouquet for Ocado

7 February 2015

9:00 AM

7 February 2015

9:00 AM

BP’s profits are down, and the oil giant is slashing up to $6 billion out of its investment plan for the year. At Shell, the cut could amount to $15 billion over the next three years. At troubled BG, still waiting for new chief executive Helge Lund to arrive, capital spending will be a third lower than last year. I wrote recently of ‘consequences we really don’t need’ as the oil price continues to plunge: cheering though it is for consumers (and good for short-term growth) to find pump prices at a five-year low, the full impact will not be felt until a decade hence, when projects cancelled now might have come on stream to ease supply in whatever cat’s-cradle of conflict afflicts the world by then.

Meanwhile, at an ‘emergency summit’ in Aberdeen, industry leaders send pleas to George Osborne to cut taxes on North Sea production. And with many local jobs at risk and house prices falling, Aberdeen itself is declared a red-alert danger zone for mortgage lenders.

Bank of England governor Mark Carney warned last month of a ‘negative shock’ to the Scottish economy that would be ‘substantially mitigated’ by current UK fiscal arrangements — but not, we deduce, by any further shift towards Scottish independence. To the extent that wavering would-be SNP voters grasp this message, Labour’s chance of holding its Scottish seats and thereby winning Westminster power must be improving. A Miliband government really would be an unwelcome consequence of cheap oil, though a failure to take the Gordon seat (which includes the north of Aberdeen) by the SNP’s Alex Salmond — whose credibility surely mirrors the falling oil graph — might be some small consolation.

Falklands campaign

Politics apart, ‘Big Oil’ is still measuring its quarterly profits in billions and charting a course towards the next long-term upswing. But down in the more speculative strata of the industry — smaller companies that set out to explore remote Africa, Asia, shale deposits and ocean floors — mayhem threatens. The FT (quoting Company Watch) reports that three-quarters of the 99 oil ventures listed on the junior stock market Aim are loss-making, a third are producing no revenues at all, and ‘almost 40… are likely to need urgent refinancing or risk going bust’.


So where are the stocks that might buck the trend? I consult my ever-cheerful man with his binoculars on the sector, who turns out to be wearing his sou’wester. ‘The Falklands!’ he whispers — and sure enough, two companies, Rockhopper Exploration and Falkland Oil & Gas, announced on Monday that they’re about to start drilling in the south Atlantic. I see one broker tipping Rockhopper’s shares, currently in the 55–60 pence range, to reach £2 — and chat-room punters talking of £5. Not that I’m suggesting you buy, but it might be another modest consolation for a Miliband victory.

Speak up, Stefano

Stefano Pessina, the 73-year-old Monaco-based tycoon who runs the Boots pharmacy chain and thinks a Labour government would be a ‘catastrophe’ for Britain, should stop trying to tell us how to vote and start paying his taxes, retorts Ed Miliband. On the contrary, I think it would be good to hear a lot more from Signor Pessina as the election approaches. He doesn’t have to do business here, after all, and since he allegedly doesn’t pay much or any tax here, his political stance is not influenced by how an incoming chancellor might hit his own pocket.

Pessina built his family’s Neapolitan pharmaceutical wholesaler into a European giant and went on to create the transatlantic Walgreens Boots Alliance conglomerate, of which he owns an $11 billion slice — and without ruining Boots, which remains a reassuring high-street presence even after he and his private-equity partners extracted oodles of profit from it. So he’s no fool. And it’s as valuable to know whether he thinks it will be worth doing business here after a Labour victory as it was useful to hear how negatively Bob Dudley, BP’s American boss, felt about the prospect of a ‘yes’ vote for Scottish independence.

An opinion poll of all 70-odd foreign-born FTSE100 chairmen and chief executives, plus a selection of exotic London-based non-doms from the upper reaches of the Rich List, would in fact be highly informative. When they collectively stop thinking of Britain as an attractive and safe place to invest, work and live, it will be bad news for the rest of us — not for the crude reason that we’ll lose the trickle-down of their wealth, but because as well-informed outsiders they have a unusually clear view into our economic crystal ball. So come on, Stefano, round up your billionaire pals, write a joint letter to The Spectator and tell us what you really think.

Ocado breaks through

The retail revolution rolls on. In the week that Tesco — for so long the UK’s greatest private-sector job creator — announced up to 2,000 job losses to follow from 43 store closures, its online grocery competitor Ocado finally broke into the black, 15 years after it was founded. Sales of £1 billion to 453,000 active customers generated a first annual profit of £7.2 million; the company also runs Morrisons’ online service, and has just announced the opening of a fourth giant distribution centre, at Erith in south-east London.

This column has been a bit sniffy over the years about the ‘whiff of financial sophistication’ around Ocado, founded as it was by a trio of ex Goldman Sachs executives. But there’s no doubt that mastery of capital markets, combined with clarity of business planning, has seen the venture through an extraordinarily long development phase. Readers who ignored my advice not to buy the shares at 180 pence when it floated in 2011, and held on when they tanked a year later, can look smug at 440 pence today.


Show comments
Close