- Extract - An Evaluation of Workforce Planning and. Economic Impact of Shale Gas Extraction. in Lancashire (UK)

Centre for Energy and Power Management - Extract - An Evaluation of Workforce Planning and Economic Impact of Shale Gas Extraction in Lancashire (UK) A LIEBR Report October 2012 1

Introduction This is an extract from the original report entitled 'An Evaluation of Workforce Planning and Economic Impact of Shale Gas Extraction in Lancashire (UK)' prepared for the Shale Gas Industry in Lancashire in October 2012. The original report was compiled by the Lancashire Institute for Economic and Business Research (LIEBR) at the Lancashire Business School, University of Central Lancashire. 2

Contents Introduction... 2 Contents... 3 Section Three: Workforce Planning in Bowland Shale, Lancashire (UK)... 5 1. Workplace Needs Assessment... 6 6.1. Workforce Projections Based on Cuadrilla Data: 2012-2022... 6 6.2. An Insight into Workplace Organisation and Type of Contracts in the Shale Gas Industry... 9 Working on a Drilling Rig at Cuadrilla... 9 Estimated Workforce Composition at Cuadrilla... 11 35,000 Shale Gas Jobs in the UK but Sharp Employment Decline beyond 2022... 13 6.3. Workforce Projections and Workforce Composition in the US... 15 An Analysis of US Shale Gas Workforce Mapping and Its Potential Application to UK... 17 US Workforce Mapping by Occupational Category... 19 Workforce Estimates based on a Combination of Sources: Cuadrilla, Regeneris, US Shale Gas... 23 Gas Industry Workforce Nexus - Based on US Data... 27 6.4. Attractiveness of Cuadrilla as a local employer of choice... 31 Annual Wage Compared to Average in Industry... 31 Recruitment, Training and Career Development... 33 Challenges to Recruitment... 34 An Insight into Job Descriptions and their Role in Employee Motivation... 36 Conclusion... 38 2. The Lancashire and North West Economy An Overview... 40 7.1. Gross Value Added and Labour Force Indicators... 40 7.2. Regional Business Activity... 45 7.3. Regional Earnings... 52 7.4. Employment by Occupation and Level of Skill... 54 3. Educational Provision in Lancashire and North West England (UK)... 59 8.1. Educational Provision Choices in Lancashire and the North West - Following in the Footsteps of US Training?... 59 8.2. Educational Provision in Lancashire and the North West via Universities and Colleges... 63 Sector-Based Work Academies - Via Jobcentre Plus... 66 Identifying a Gap in the Educational Provision... 68 Prospective Models of Education and Training... 69 Bibliography... 72 3

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Section Three: Workforce Planning in Bowland Shale, Lancashire (UK) 5

1. Workplace Needs Assessment 6.1. Workforce Projections Based on Cuadrilla Data: 2012-2022 Workplace needs relevant to the shale gas industry have been estimated based on two sources: (i) information relating to the projected number of rigs to be established within a medium term timeframe, and (ii) an employment estimate generated by Regeneris (2011) based upon the aforementioned figures. Cuadrilla Resources development plan predicts the establishment of 800 wells in the Bowland Shale, within the next 5 to 10 years. This is illustrated in FIG 6-1. Field activity begins with the current one drill rig, then increases up to 10 drill rigs estimated to be in use by Cuadrilla by 2016 and thereafter reaches a steady-state for a period of perhaps 15 to 20 years. FIG 6-1: Estimated Number of Drill Rigs in Bowland Shale, Lancashire, 2012 12 10 10 10 8 6 5 4 2 1 1 2 0 /\/ 2012 2013 2014 2015 2016 2046 (Source: Cuadrilla Resources, September 2012) In accordance to Cuadrilla's own estimations, if the peak level of 10 drill rigs is reached by 2016, the current technology level could allow an estimate of 800 wells to be drilled, fractured and put in production to generate shale gas, from what may be only half of the 80 well pads included in the highdevelopment end scenario from the Regeneris report (2011). In this way the impact to the environment and disruption to the local community may be reduced, while, in terms of workforce needs, this technological change is expected to reduce the number of employees needed by allowing the company to benefit from larger economies of scale when drilling on pads with nearly twice as many wells as previously expected (see sub-section 6-2). 6

FIG 6-1 gives a first glimpse of estimated growth at a doubling rate up to 2016, and plateauing afterwards for two decades. Nevertheless, it is uncertain how development based on the number of drill rigs can be used to relate activity needs to specific workforce projections, or what would happen after 2046. Thus, further information has been sought from Cuadrilla with regard to specific employment size. Workforce projections can be split between workforce directly and indirectly employed by Cuadrilla. Firstly, according to Cuadrilla's own sources, if the development plan from FIG 6-1 is fulfilled by 2016, the headcount per year for the total personnel directly employed by Cuadrilla in the next two decades is expected to grow to more than seven-fold from the current base of 74 employees, to 543 employees directly employed by the company (see Table 6-1). Table 6-1: Workplace Assessment of Cuadrilla in Bowland Shale, Lancashire: Projected Headcount 2012-2012 Year Managers Technical - Senior Level Technical - Junior Level Operational - Senior Level Operational - Junior Level Administration - Senior Level Administration - Junior Level Total Employees per Year 2012 7 4 4 15 30 4 10 74 2013 10 6 8 22 42 6 12 106 2014 10 6 10 29 54 6 14 129 2015 10 8 12 50 90 8 16 194 2016 10 8 14 50 90 8 18 198 2017 11 10 16 85 150 10 22 304 2018 12 12 20 100 180 12 24 360 2019 12 14 25 115 210 14 26 416 2020 13 15 30 130 240 16 28 472 2021 14 16 35 135 260 17 30 507 2022 15 18 40 140 280 18 32 543 (Source: Cuadrilla Resources, September 2012) Secondly, in relation to the part of the workforce not employed directly by Cuadrilla, the company has reported that it estimates its third party service-providers to require collectively about 1 to 1.5 times the staffing levels that Cuadrilla would itself employ. This contracted-out workforce would be split over 8 to 10 different service companies. The proportion of these contract workers being drawn from the Lancashire region is uncertain, although responses to a survey of the current workforce associated with Bowland Shale would suggest that the density of local workers is likely to be lower than for Cuadrilla directly. It is more difficult to influence the recruitment policies of independent organisations, although the encouragement of clustering within the region and human capital development of the skills required, within the local area, will facilitate this development. In addition, other personnel would be required for short periods of time, related to specific activities, such as the drilling of the rig, and/or hydraulic fracturing teams working after the drilling rig has 7

finished its activity. As the previous section demonstrated, not all of this employment would occur in Lancashire. The current proportion of the Cuadrilla directly employed workforce, with permanent residence in Lancashire, is around 8%, with the remainder drawn from other regions of the UK and abroad. However, the Regeneris report predicted that the total estimated (direct and indirect) workforce in Lancashire of 2,500 people, representing 38% of the total national workforce of 6,550 people (see Regeneris, 2011:47). Unfortunately, there is no evidence, advanced in the report, to suggest why this may or may not be the case. Instead, there is an untested assumption built into the Regenris calculation that, at certain stages of production, up to 50% of workers and suppliers will be located in Lancashire (see Regeneris 2011:41). It can be presumed that this is no doubt a causal factor of why the forcasted proportion of local employment increases from about 8% at test rig times to the 38% figure. Whilst unsatisfactory, this estimate has been adopted by this report, in the absence of better data. However, it has to be treated with extreme caution, since there is no specific reason why it can be expected to reach this relatively high level of 38% without deliberate action taken to enhance local skills and/or local recruitment such as those recommended in this report. Recommendation 4 - There is no specific reason to anticipate that a specific local-to-national employment ratio, estimated by the Regeneris report (2011) to grow from 8% of the current total workforce to around 38%, would occur without specific interventions intended to realise this transformation. A review of these developments would be highly-recommended, as and when more data would become available - e.g. when more wells are drilled. Recommendation 5 - The proportion of Lancashire-to-national employees could change significantly if determined action would take place, either via a directed recruitment policy or through the type of training and educational provision that is discussed in this report. Through a highly-recommended combination of these initiatives, there is considerable potential to greatly increase this proportion, to the benefit of the local community in Lancashire. At its peak levels of activity, Bowland Shale has been predicted to sustain the employment of up to 6,550 people, with the majority sourced from third party contractors. Of these, at peak level of activity, an estimated 2,500 employees (or 38%) are expected to come from the local area in Lancashire. These figures derive from the Regeneris report (2011:47), and include an estimate made to account for a multiplier effect experienced within the Lancashire economy, and hence approximately 1,150 people of this total will not be employed directly in the shale gas industry itself, but in other areas of the local economy, sustained by the spending power of the energy sector. Nevertheless, this still leaves around a workforce of around 5,400 people, including around 2,052 local residents. In view of the local income multiplier analysis, contained in the previous section of 8

this report, and the importance of spending patterns of workers in the industry, stakeholders may wish to consider developing interventions designed to increase this latter proportion, in order to benefit the local economy. Workforce projections, derived from industry projections and summarised in Table 6-1, are limited to seven categories of employees and stop abruptly in 2022. In the absence of further detailed forecasts drawn from UK industry sources, additional data has been derived from the more mature US shale gas industry. Whilst direct comparisons are, of course, to be treated with due care, as a result of different environmental and institutional frameworks within which the US and UK industries operate, nevertheless, this has enabled the report to link Cuadrilla's development plans (FIG 6-1; Table 6-1) to the type of potential workplace assessment in Lancashire and the North West England (see Section 6.2) that might be anticipated to arise from a more mature shale gas industry, of the type operating in America. 6.2. An Insight into Workplace Organisation and Type of Contracts in the Shale Gas Industry A combination of industry-provided and secondary data from US sources has been used to obtain workforce projections based on closer links with the activity of the drill rig and other phases of the production. Working on a Drilling Rig at Cuadrilla Table 6-2 shows the composition of the main drill rig crew (per drill rig), alongside the other key positions, with some detail related to how the staff would be trained, their roles and their type of contracts. It can be noted that the type of contracts are, for senior level, 28 days on and 28 days off, while relying on shift work for lower hierarchy positions. Table 6-2 refers strictly to Cuadrilla directly hired employees. Third party contractors would be working alongside Cuadrilla employees on the drill rig, and data related to their contract types indicates that their working pattern would also be mostly based on shifts, with rotation of threepersons per position, such as for drilling mud/fluids crew working 12-hour shifts on a 3-person rotation. Other job positions and job details around the drill rig, for personnel hired by service companies to work for Cuadrilla, include at least two people for every position such as directional 9

drilling staff; cement operation or cement casting; the well-logging crew 1 ; or truck drivers. Cuadrilla has also reported that it estimates third party service providers to require the same type of personnel as shown in this report in Table 6-2. Table 6-2: Key Employment Positions and Job Details per Drill Rig - Personnel Hired by Cuadrilla, 2012* Type DRILLING RIG CREW OTHER KEY POSITIONS Position Drilling Rig Supervisor Number of Positions Needed 1 2 Rig Manager 1 2 Drillers and Assistant Driller Crew 4-5 3 Number of Employees per position - 3 drilling Main Job Duty / Reporting to in charge of the whole site and the rig this is the most senior position reports to the drilling rig supervisor; is in charge of making sure the equipment is maintained and operated to follow the programme that the drilling supervisor is trying to execute working to operate the equipment Geologist several - surveying - On-site Security Person Field Safety Manager Maintenance Person Senior technical staff: Drilling Engineer, Drilling Manager from head officer several 3 site security - Notes on Experience, Skill or Training Needs a number of years of drilling background typically someone brought from the outside of the area or trained locally after 3-5 years of work 5-10 years of drilling experience, someone who could be trained from the local area if given enough time to accumulate experience 4 to 5 years of experience - Type of Contract On-site full-time rotating on 28 days on and 28 days off On-site full-time rotating on 28 days on and 28 days off 12 -hour day shift and 3- person rotation* 12 -hour day shift and 3- person rotation* Full time On rotation 12 -hour day shift and 3- person rotation* - - site safety - On rotation - - site maintenance - On rotation - - - - Part-time (Source: Cuadrilla Resources, September 2012) *Note: A 3-person rotation implies the following working schedule: while a 24-hour work day is shared between two people on their half-day 12-hour (day / night) shifts, a third person is on their day off. A dash (-) has been used to signify that the respective data was not specified by our source of information. In addition to data in Table 6-2, Cuadrilla calculates that, on average, on any day per drill rig there would be about 20 people working, of which about half would be Cuadrilla employees and the others 1 The well-logging crew lower instruments into the well on wire lines and do specialised surveys for Cuadrilla at various times in the life of the well while it is being drilled (Cuadrilla Resources, 2012). 10

would be employed by third party contractors. Also working in relation to the drill rig, there would be a large team involved into the construction of the wells and in the process of hydraulic fracturing, as well as a well-testing crew. A typical hydraulic fracturing team would consist of about 10 people. Finally, there would be employees located at the head-office, working maybe part of the time on-site. These include management, administration and consultants. Given the early stage of development, within Bowland Shale, it is not surprising that many of these workforce estimates remain tentative; particularly, relating to the composition, employment patterns and working patterns of the contract workforce. Thus, the next part of this section concentrates only on the workforce directly employed by Cuadrilla, for which data supplied in Table 6-1 contains Cuadrilla management's most up-to-date projections for the workforce employed and drawing a pay directly from the company. Estimated Workforce Composition at Cuadrilla Disaggregating the total number of predicted employees into broad occupational categories (see Table 6-1), indicates the disproportionate direct employment of operational staff at mostly junior level, followed by senior operational staff and administration. Taken together these categories account for more than half of the total workforce in any given year (see FIG 6-2). FIG 6-2: Estimated Percent Composition of Cuadrilla's Workforce as Part of Total Yearly Workforce, 2012-2022 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 Managers Technical - Senior level Technical - Junior level Operational - Senior level Operational - Junior level Administration - Senior level Administration - Junior level 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (Source: Cuadrilla Resources, September 2012) 11

Workforce composition changes over time, as indicated in FIG 6-3, as operational roles become increasingly important, and the support services decline as a share of the total workforce. The number of managers is predicted to double, although this category decreases as a percentage of the total workforce, by around two-thirds, from 10% to 3%. The proportion of technical workers remains the same, over the ten year period, although senior technical positions decline somewhat and junior technical staff increase by a similar amount. Operational employees represent the largest group within the workforce, throughout this period, and indeed, with both senior and junior positions comprising an increasing segment of the labour force during this development phase. FIG 6-3: Cuadrilla's Projected Workforce Composition - Comparisons between 2012 and 2022* Year 2012 Year 2022 4 5% 10 14% 7 10% 4 5% 4 5% 18 3% 32 6% 15 3% 18 3% 40 7% 15 20% 140 26% 30 41% 280 52% Managers Technical - Senior level Technical - Junior level Operational - Senior level Operational - Junior level Administration - Senior level Administration - Junior level Managers Technical - Senior level Technical - Junior level Operational - Senior level Operational - Junior level Administration - Senior level Administration - Junior level (Source: Cuadrilla Resources, September 2012) *Note: The legend shows categories clockwise, starting at the top of the circle e.g. in 2012 there are 7 managers corresponding to 10% of the total workforce. to number 7 and represents 12

These trends can be viewed FIG 6-4, where the pace of increase in different employment categories can be noted FIG 6-4: Cuadrilla's Projected Workforce Development, 2012-2022 550 500 450 400 350 300 250 200 150 100 50 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Managers Technical - Senior level Technical - Junior level Operational - Senior level Operational - Junior level Administration - Senior level Administration - Junior level Total (Source: Cuadrilla Resources, September 2012) 35,000 Shale Gas Jobs in the UK but Sharp Employment Decline beyond 2022 The workforce quantitative assessment beyond the year 2022 depends largely on factors such as the actual reserves of gas available (as opposed to pre-drilling estimates), lengths of shale gas production per well, technology available, and/ or economic fluctuations due to cost or price changes, re-location of third party contractors closer to the drilling site, or labour availability. 13

Assuming the accuracy of Cuadrilla industry estimates beyond the next 10-15 years, the main contribution the shale gas sector can make to the Lancashire employment prospects will occur in the next decade and a half. During this period of time, the Regeneris report (2011:47) forecasted that the combination of exploration, drilling and production activities during the next fifteen to twenty years, will result in demand for labour peaking at around 5,400 employees nationally, including around 2,000 individuals permanently resident in Lancashire. However, drilling would be completed after this peak period of activity, and then Cuadrilla would reach the phase when the only activity would be the production of shale gas occurring via wells already in place. It is during the production phase that employment prospects will decline dramatically from the predicted 5,400 nationally at their peak, to only under 200 production workers, and with the proportion of local employees amounting to under 50 people. 2 To place the expansion of Bowland Shale in a national context, a recent Institute of Directors (IoD) report has predicted that, if favourable developments occurred throughout the next decade, the UK shale gas industry could provide up to 10% of annual UK gas demand. This would be equivalent to 8% of total UK oil and gas production, and, since 440,000 full-time employees (FTE) are employed directly and indirectly in this sector, this produces the IoD estimate that, in a decade's time, UK shale gas production may provide employment for around 35,000 FTEs per annum (IoD, 2012:9; Oil and Gas Activity Survey, 2012:6). 3 Bowland Shale would be a part of this equation. Of course, these estimates are only a crude approximation of likely employment generation, given that they assume constant returns to scale, when a capital intensive industry such as shale gas would anticipate significant economies of scale (which would reduce the total numbers of employees needed), however, it is a useful estimate to consider alongside the local effects that expansion of Bowland Shale may generate, which is the focus of this report. Furthermore, future projections are inevitably constrained by the current level of knowledge about geological and technological factors. An unanticipated geological problem may reduce the amount of recoverable gas considerably, whereas technological advances may mean that a larger proportion of unconventional reserves can become technically-recoverable gas reserves. 4 The IoD projections are based upon the assumption of a rapid expansion of shale gas in UK in order to meet a variety of energy and economic needs 5, whereas Bowland Shale expansion is currently viewed as being more gradual, with a smoother growth path, over a longer time period. Moreover, the role of national 2 Although FIG 3-4 and FIG 3-5 in Section 1 show the UK and Lancashire estimates to be larger, the assumption made in this report is that Lancashire would employ 38% of the total UK workforce and figures shown here are based on calculations as per Table 6-5. 3 Of the 440,000 FTEs in UK, approximately 45% are in Scotland (Oil and Gas Activity Survey, 2012:6). 4 For instance, waterless hydraulic fracturing is a recent technological development in the extraction of shale gas. 5 Related to the heightened attractiveness of the gas shale industry in the UK, the IoD report suggests that current re-estimations of UK gas reserves mean that, if 10% of the 300 trillion cubic feet of shale gas is extracted, then that would be sufficient for 10% of UK gas demand for a period of 103 years (IoD, 2012 : 9). 14

regulation is a further significant element in the encouragement or restriction of shale gas industry expansion, as average US shale gas recovery rates of 18% might be difficult for the UK industry to replicate, given the currently stricter regulation within which the industry operates (IoD, 2012: 6-8). 6.3. Workforce Projections and Workforce Composition in the US In order to further disaggregate workforce projections into narrower occupational and skill requirements, data has been drawn from the more mature US shale gas industry. Here, one study states that, to drill a single well requires approximately 400 occupations; this calculation taking into account the production of inputs, provision of supply side services and so forth (Jacquet, 2011:3). Using a slightly different set of defined occupational categories, a second study suggests that it takes more than 420 individuals, comprising around 150 occupational categories, to produce gas from a Marcellus shale gas well (MSETC, 2011:29). At least part of this difference between the two studies is due to variation in occupational definitions, however, the key point is that the resulting data nevertheless points to a complex interaction of a nexus of occupations, skills and diverse employment relationships, to extract natural gas from a single well. Jacquet (2011:3) seeks to categorise workforce requirements as percentages. It can be noticed that, if positions around a well are arranged in descending proportion as part of the workforce, general office hold the largest part at nearly a fifth, followed by general labour and operators (see FIG 6-5 for more details). FIG 6-5: Workforce Requirements around a Single Well - Percentages, US, 2011 5 5 6 1 1 1 1 General Office 3 3 3 General Labour 20 Heavy Equipment Operators 4 Drivers Semi-Skilled Technical Landmen/Realty Supervisors Lawyers Engineers 20 Geologists Welders Inspectors 10 X-Ray 17 Cartographers & Geological Surveys Paralegal services (Source: Jacquet 2011:3) Note: General Office (20%) includes positions such as public relations, marketing, accounting, or other administrative jobs. It represents the first section of the pie-chart starting at 12 and moving clockwise. Thus, the next category at 20% is General Labour, then Heavy Equipment Operators is 17%, and so on, ending with Paralegal Services at 1%. 15

Skills distribution is not the only factor complicating the workforce requirements of the shale gas industry, however, as the temporal distribution of employment creation also matters. Due to the majority of jobs occurring during an early phase of activity, shale gas extraction tends to conform to the employment patterns in many other natural resource extraction industries, namely sharp oscillations between large and small scale activity (Jacquet, 2011:5). Drilling is often sub-contracted to specialised consultants and/or energy companies, who tend to be national or international in scope. Indeed, a relatively small proportion of the total workforce requirements are employed directly by the energy firm which owns the gas well (Jacquet, 2011:11). Hydraulic fracturing, a process occurring after the well is drilled, is estimated to take an industry average 25-30 person crew, with perhaps 3-5 persons thereafter involved in plugging the stage, before the next stage is completed; around 15 stages may be required in an average well, with 4-5 completed in a 24 hour period. The production phase is generally more long term (with a typical well lasting for perhaps 30 years) and predictable, with a greater proportion of local workers. Studies indicate that one worker can monitor and maintain six wells during this production phase (Jacquet, 2011:5). Jacquet (2011:4) estimates that the drilling phase accounts for between 95% and 98% of the workforce, engaged at a single drilling site, and with most of these being employed at the site for relatively short periods of time, whereas a much smaller, but more stable employment pattern emerges for the production phase the latter accounts for less than 5% of the total. Similarly, the MSETC (2011:29) estimate is for a 13.1 FTE (full time equivalent) direct employment for a well, with 12.9 FTEs occurring during the pre-drilling and drilling phases, and only 0.19 FTEs during the production phase. Therefore, the shale gas industry in the US has been shown to require a very diverse skill set, with fluctuations according to the respective progress of activity and phase of development and production. The experience of the shale gas industry in Pennsylvania is that, initially, workers tend to be drawn from elsewhere in the nation, or indeed overseas, on temporary contracts, and therefore their residence in the area is of an equally temporary, transient nature. However, as the industry develops, and as it moves towards the production phase, a greater proportion of local residents are employed, albeit the total number of employees in the production phase is much lower than in the drilling phase. 16

Benefits to an area arising from a higher proportion of local workers at all stages of the shale gas extraction activity would include a higher proportion of wages spent locally, less pressure on housing costs and lower increases in the cost of living experienced by the wider community, facilitates cultural integration for those members of the workforce who are not local and this may also reduce costs for employers (as temporary housing costs and other relocation costs are not required), whilst it may additionally reduce absenteeism and/or labour supply turnover, although there would need to be further work done on this issue to substantiate this latter hypothesis (Jacquet, 2011:14). An Analysis of US Shale Gas Workforce Mapping and Its Potential Application to UK In its calculation of workforce estimates, the MSETC report (2011:29) notes the persistence of economies of scale, which implies that occur between the first well drilled and the subsequent wells drilled on the same pad, whereby, with more wells per pad, there is a diminishing proportionate labour requirement for the drilling (but not production) phase. Therefore, workforce mapping reflects greater efficiency gains in job requirements as production increases, and job creation forecasts, which are typically based upon a scaling up of numbers with production (using constant coefficients), are likely to overestimate the employment needs of the industry. This can be addressed by using a 26.3% efficiency gain, to take account of the economies of scale observed in US operations (see below explanations related to Table 6-3). Annual data from the Marcellus Shale wells indicates that the efficiency gain occurring, when subsequent wells are drilled and completed (to produce gas) on the same well pad. It estimated that 13.09 full-time equivalent (FTE) direct jobs are needed per first drilled well on a pad, but only 9.65 FTEs are needed for subsequent wells drilled on the same well pad. The inferred efficiency gain derives from a workforce reduction of 26.3%. The cause of the economies of scale may arise from various sources, including the pre-existence of equipment on site and/or requiring less time to assemble work teams for subsequent wells on the same pad (MSETC 2011:29). Perhaps surprisingly, the MSETC (2011) report does not foresee similar efficiency gains occurring at the level of production, when, for instance, one worker may be involved in the simultaneous production supervision or production-related operations on more than one well. There would appear a prima facie case for economies of scale to exist during this phase of production as well i.e. if one worker can maintain ten wells as easily as one, their unit cost will be one tenth per well under the more developed field. However, since employment during the production phase is such a small proportion of overall employment levels, this potential omission has only marginal impact upon the total workforce calculations made by the MSETC report. The role played by technology is significant, to the extent that more wells could be drilled on the same pad by a rig in one year. The way technological advances impact on workforce predictions is 17

described in some detail in the MSETC report (see the technical excerpt T-1 in the appendix). At the time of this report, up to 20 wells on the same pad are estimated for Bowland Shale by Cuadrilla in October 2012, which represents a doubling of the estimated number of wells per pad in 2011 of only 10 (and the latter is the estimate used, incidentally, by the Regeneris report, 2011). As a general rule of thumb, it can be hypothesised that the higher the number of wells per pad, the larger the efficiencies of scale, and, consequently, the fewer the number of workers needed. Accordingly, calculations here below take into account the estimation of being able to drill 20 wells per well pad. Using data from the MSETC report, it can be estimated that, were the UK industry to develop in a similar way to the shale gas industry in the US, then the total workforce needed for the Bowland Shale gas exploration could be 7,858 FTEs. Over the 800 wells that Cuadrilla expects to drill in the Bowland field, the workforce is averaged at 9.82 FTEs per well (see Table 6-3). Table 6-3: FTEs by Phase and Type of Well: Efficiency Gains and Workforce Estimations Type of Well Phase First Well on a Pad Per Additional Well on the Same Pad Number % Number % Pre-drilling 2.41 18.4 0.65 6.7 Drilling 10.49 80.1 8.81 91.3 Total pre-drilling and drilling 12.90 98.5 9.46 98.0 Production 0.19 1.5 0.19 2.0 Total FTEs needed 13.09 100.0 9.65 100.0 Efficiency gain between first well and additional wells (13.09-9.65) x 100/ 13.09 = 26.3 % fewer FTEs needed per additional well Total workforce needed to drill and produce gas from 800 wells on 40 well pads in Bowland Shale (FTEs) If drilling 800 wells on 40 well pads, each well pad will have 20 wells (1 first well and 19 additional wells) and there will be in total 40 first wells and 760 additional wells, hence: 40 x 13.09 + 760 x 9.65 = 7,857.6 FTEs needed or rounded up to 7,858 FTEs Average FTEs per well 7,858 FTEs / 800 wells = 9.823 FTEs / well (Source: based on MSETC, 2011 : 29). Note: calculations include only obtaining dry gas, and do not include the potential of producing high-btu gas which have slightly higher workforce estimations. The Regeneris report, upon which industry estimates rely, does include an efficiency gain of 15% in their workforce calculations (Regeneris, 2011). However, the Marcellus shale case study would indicate that a larger efficiency gain of 26.3% may be prudent to include in workforce calculations (see Table 6-3). The difference is significant when comparing the calculations for workforce requirements per well the MSETC estimate was for 9.65 FTEs whereas, with its lower estimate for efficiency gains, the equivalent Regeneris figure would be 11.13 FTEs. This represents a difference in predicted workforce 18

requirements of 14.3%, which is a sizeable difference. 6 Yet, intriguingly, even with this lower efficiency gain included in their calculations, the Regeneris total workforce figures work out lower than scaling US figures, per well, and applying them to Bowland Shale development plan. This difference in methodology highlights the sensitivity of predictions to both the assumptions built into a model, but also the data sources utilised as the basis for the calculation. It is, therefore, highly recommended that, as shale gas extraction progresses from pre-drilling to drilling and beyond, estimates of efficiency gains and economies of scale are monitored and, if necessarily, workforce assessments re-adjusted accordingly in order to obtain projections of employment and economic impact of the shale gas industry in Lancashire that are as accurate as possible. US Workforce Mapping by Occupational Category The seven main occupational categories identified in the UK, by Cuadrilla Resources (Table 6-1), for which estimate numbers are provided per year in Lancashire, are mapped against the 15 categories in the US as identified by the percentages of workforce needed around a single well (Figure 6-5). The latter are transposed through aggregation in order to make this possible. In doing so, it is unavoidable that some of the detail contained in the US data is lost, however without this process, meaningful comparisons would be negated. The resulting information is presented under the simplifying assumption of constant returns to scale (see Table 6-4, above). Despite knowing that the industry beneficiates from economies of scale, this simplifying assumption is necessary at this stage in order to allow the utilisation in calculations of the constant percentages provided by the US data (see last column of Table 6-4). 6 With a Regeneirs report 15% efficiency gain, the workforce would be bigger, totalling 8,982.4 FTEs - using the information from Table 6-3, the calculation is: 40 first wells x 13.09 FTEs + 760 additional wells x 11.13 FTEs = 8,982.4 FTEs. Or, the latter figure would be larger by 1,124 FTEs than the MSETC estimate of a total of 7,868 in Table 6-3. In other words, the 15% efficiency gain estimate implies a workforce that would be 14.3 % higher than MSETC data indicates, which would be falsely optimistic in terms of job creation. 19

Table 6-4: Comparison of Cuadrilla Estimated Workforce in Lancashire (Projected Headcount) and US-Based Workforce YEAR 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 UK US Data N % N % N % N % N % N % N % N % N % N % N % AVG. Category % 1 Managers 7 9.5 10 9.4 10 7.8 10 5.2 10 5.1 11 3.6 12 3.3 12 2.9 13 2.8 14 2.8 15 2.8 5.0 Supervisors 5.0 2 Technical - Senior level 4 5.4 6 5.7 6 4.7 8 4.1 8 4.0 10 3.3 12 3.3 14 3.4 15 3.2 16 3.2 18 3.3 4.0 Geologists 3%; Engineers 3%; Cartog/GIS 1%; X-Ray 1% 8.0 3 Technical - Junior level 4 5.4 8 7.5 10 7.8 12 6.2 14 7.1 16 5.3 20 5.6 25 6.0 30 6.4 35 6.9 40 7.4 6.5 Semi-skilled Tech 6%; Welders 1% 8.0 4 Op. - Senior level 15 20.3 22 20.8 29 22.5 50 25.8 50 25.3 85 28.0 100 27.8 115 27.6 130 27.5 135 26.6 140 25.8 25.3 Inspectors 1%, Landmen/Re alty 6.0 5 Op.- Junior level 30 40.5 42 39.6 54 41.9 90 46.4 90 45.5 150 49.3 180 50.0 210 50.5 240 50.8 260 51.3 280 51.6 47.0 General Labour 20%; Heavy Equipment Operators 17%; Drivers 10%; Timber Logging 1% 48.0 6 Admin - Senior level 4 5.4 6 5.7 6 4.7 8 4.1 8 4.0 10 3.3 12 3.3 14 3.4 16 3.4 17 3.4 18 3.3 4.0 Lawyers 4%; Paralegal 1% 5.0 7 Admin - Junior level 10 13.5 12 11.3 14 10.9 16 8.2 18 9.1 22 7.2 24 6.7 26 6.3 28 5.9 30 5.9 32 5.9 8.3 TOTAL 74 100 106 100 129 100 194 100 198 100 304 100 360 100 416 100 472 100 507 100 543 100-100 (Source: Cuadrilla Resources, September 2012; MSETC, 2011 :36) Notes: N - Number; % - Percent calculated as of total annual workforce (shown in the last row). Admin - Administration. Op.- Operational. Table 6-4 partly reproduces Table 6-1 adding percentages to each category of the workforce. Also in addition to the data from Table 6-1, in Table 6-4 the US workforce categories are shown in the last column. AVG - average. General Office 20.0 20

By transposing the US-derived 15 categories into Cuadrilla definitions, certain discrepancies appear (see FIG 6-6). By and large, manager-supervisors account for 5% of the US model whereas some UK estimates are at times as low as 2.8, and remain lower than 5% during 2017-2022. Figures for three occupational categories, namely technical junior level, operational junior level and administration senior level, are comparable between US and UK. However, there are three large variations, namely the difference in figures for junior admin, where the US study estimates that 20% of the total workforce is employed in this way, whereas the UK study has this averaging 8.3%; and the senior operations figures which account for only 6% in the US and a massive 25.3% in the UK; and senior technical staff at 8.0% in the US whereas the UK estimate averages only half as much at 4% (see Table 6-4). FIG 6-6: Comparison of UK (Estimated) Occupations and US-Based Occupations 60 50 47 48 40 30 20 25.3 20 UK US 10 5 5 4 8 8 6.5 6 4 5 8.3 0 Managers Technical - Senior level Technical - Junior level Op. - Senior level Op.- Junior level Admin - Senior level Admin - Junior level 21

FIG 6-6. (Continued) UK US 4 8.3 5 4 6.5 20 5 8 8 25.3 5 6 47 48 Managers Technical - Senior level Technical - Junior level Op. - Senior level Op.- Junior level Admin - Senior level Admin - Junior level Managers Technical - Senior level Technical - Junior level Op. - Senior level Op.- Junior level Admin - Senior level Admin - Junior level These findings are a reminder that Cuadrilla figures relate to direct employment estimates, which represents only a small proportion of total shale gas employment predicted. In fact, the number of total direct employees in Table 6-1 stands at only 10% out of a predicted direct and indirect workforce of around 5,400 (as per the Regeneris report 2011:47). Therefore, the Cuadrilla workforce reflects the general US total shale gas workforce except where certain functions (i.e. specifically legal, marketing, administration) are sub-contracted disproportionately, and other functions (i.e. supervisors) are disproportionately undertaken by Cuadrilla employees, presumably managing teams of sub-contracted workers employed for short periods of time. 22

Workforce Estimates based on a Combination of Sources: Cuadrilla, Regeneris, US Shale Gas Combining the total workforce predictions made by the Regeneris report (2011:47) with the information drawn from the US concerning the breakdown of occupations (MSETC, 2011:36), it is possible to produce a set of predicted estimates for skill and occupational requirements for each year of the development phase within Bowland Shale (see Table 6-5). Both national and Lancashire-level workforce maps can be obtained this way; the Lancashire workforce figures being based on the assumption that 38% of the total Cuadrilla national workforce is located in Lancashire, hypothesised in the Regeneris report (2011:47). Moreover, workforce estimations can be obtained via using the MSETC application to UK shale gas industry (see Table 6-3) of a total UK workforce at peak level reaching 7,858 FTEs (see Table 6-6). Assumptions here follow the same calculation as in Table 6-5, namely that 38% of the total national workforce would be employed in Lancashire. With the caveat that the assumptions made are of similar industrial development in the UK and the US shale gas industry, the US predicted workforce of 7,858 is notably higher, the difference being of 2,458 employees (or higher by 45%), than the Cuadrilla (and Regeneris) total UK employment figure that stands at 5,400 employees. Nevertheless, this report does not see this as a fast-and-hard prediction, but, if US predictions were replicated, this might be the result. Moreover, US-based workforce projections offer value-added by indicating how the US experience of a mature shale gas industry would translate to the UK. However, other differing assumptions could imply that these projections remain largely subject to variation, such as due to unforeseeable discrepancies that may arise as the UK industry follows its own path of development. For a graphical comparison of Table 6-5 and Table 6-6, please see in the appendix Table A-5 and FIG A-2. 23

Table 6-5: Workforce Mapping for Lancashire in Bowland Shale, Lancashire: Projected Headcount per Occupation YEAR(S) 2013 2014 2015 2016-2026 2027 2028 2029-2032 US Occupational Proportions Employment Categories UK L UK L UK L UK L UK L UK L UK L Applied to UK 1 Managers 90 34 125 48 175 67 270 103 190 72 100 38 5 2 0.05 2 Technical - Senior level 144 55 200 76 280 106 432 164 304 116 160 61 8 3 0.08 3 Technical - Junior level 144 55 200 76 280 106 432 164 304 116 160 61 8 3 0.08 4 Operational - Senior level 108 41 150 57 210 80 324 123 228 87 120 46 6 2 0.06 5 Operational- Junior level 864 328 1,200 456 1,680 638 2,592 985 1,824 693 960 365 48 18 0.48 6 Administration - Senior level 90 34 125 48 175 67 270 103 190 72 100 38 5 2 0.05 7 Administration - Junior level 360 137 500 190 700 266 1,080 410 760 289 400 152 20 8 0.20 TOTAL 1,800 684 2,500 950 3,500 1,330 5,400 2,052 3,800 1,444 2,000 760 100 38 1.00 (Source: Cuadrilla Resources, September 2012; MSETC, 2011 :36, Regeneris, 2011:47-48) Notes: UK - National UK Employment; Figures based on graphical interpretation of Figures 9-5 and 9-6 showing FTEs in the Regeneris report (2011:47-48), excluding the category of FTEs induced due to differing methodology / assumptions. L-Lancashire Employment. Figure calculated as a constant 38% of UK employment, excluding the category of FTEs induced due to differing methodology / assumptions. The seven categories of employment are as per Cuadrilla Resources (2012). Workforce calculation is made by applying to the annual workforce (annual workforce shown in the last row) the US percentages shown in the last column. Figures for years 2016-2026 show peak levels of employment. 24

Table 6-6: Workforce Mapping via US-Based Predictions YEAR(S) 2013 2014 2015 2016-2026 2027 2028 2029-2032 US Occupational Proportions Employment Categories UK L UK L UK L UK L UK L UK L UK L Applied to UK 1 Managers 131 50 182 69 255 97 393 149 276 105 146 55 7 3 0.05 2 Technical - Senior level 210 80 291 111 407 155 629 239 442 168 233 88 12 4 0.08 3 Technical - Junior level 210 80 291 111 407 155 629 239 442 168 233 88 12 4 0.08 4 Operational - Senior level 157 60 218 83 306 116 471 179 332 126 175 66 9 3 0.06 5 Operational- Junior level 1,257 478 1,746 664 2,445 929 3,772 1,433 2,654 1,009 1,397 531 70 27 0.48 6 Administration - Senior level 131 50 182 69 255 97 393 149 276 105 146 55 7 3 0.05 7 Administration - Junior level 524 199 728 276 1,019 387 1,572 597 1,106 420 582 221 29 11 0.20 TOTAL 2,619 995 3,638 1,382 5,093 1,935 7,858 2,986 5,530 2,101 2,910 1,106 146 55 1.00 (Source: Cuadrilla Resources, September 2012; MSETC, 2011 :36, Regeneris, 2011:47-48) Notes: UK - National UK Employment; L-Lancashire Employment. Figure calculated as a constant 38% of UK employment, excluding the category of FTEs induced due to differing methodology / assumptions. UK total figures based on US predictions of peak employment at 7,858 (as of FIG 6-3), and on recalculating Table 6-5 based on Regeneris year-on-year changes that are part of Table 6-5. Thus, proportions have been kept constant between peak level employment in UK and the respective annual figure. E. g, in 2027, the UK figure of 5,530 is calculated as follows: 7,858 (UK peak in Table 6-3) x 3,800 (UK total in 2027 in Table 6-5) / 5,400 (UK peak in Table 6-5) = 5,530. The category of FTEs induced is still excluded due to differing methodology / assumptions. The seven categories of employment are as per Cuadrilla Resources (2012). Workforce calculation is made by applying to the annual workforce (annual workforce shown in the last row) the US percentages shown in the last column. Figures for years 2016-2026 show peak levels of employment. 25

Focusing on the total workforce estimations for UK and Lancashire, based on the Regeneris report and the shale gas industry in the US (last row in Table 6-5 and last row in Table 6-6), the employment projections are shown side-by-side in Table 6-7 and FIG 6-7. These indicate the development path for the industry to reach a peak for the duration of a decade, from 2016-2026, and then decline sharply during 2027-2028 to a small employment base of, at best, fewer than 150 employees nationally and around 50 employees in Lancashire. Table 6-7: Total Workforce Estimations for Shale Gas Industry in UK and Lancashire 2013 2014 2015 2016 to 2026 2027 2028 2029 to 2032 UK Level (Regeneris Based) UK Level (US Based) Lancashire (Regeneris Based) Lancashire (US Based) 1,800 2,500 3,500 5,400 3,800 2,000 100 2,619 3,638 5,093 7,858 5,530 2,910 146 684 950 1,330 2,052 1,444 760 38 995 1,382 1,935 2,986 2,101 1,106 55 FIG 6-7: Total Workforce Estimations for Shale Gas Industry in UK and Lancashire 8,000 7,858 7,000 6,000 5,000 5,093 5,400 5,530 4,000 3,000 2,000 1,000 0 3,638 3,800 3,500 2,986 2,910 2,619 2,500 2,000 1,800 1,935 2,052 2,101 1,382 1,330 1,444 995 950 1,106 684 760 2013 2014 2015 2016 to 2026 2027 2028 2029 to 2032 UK Level (Regeneris Based) UK Level (US Based) Lancs (Regeneris Based) Lancs (US Based) 26

Gas Industry Workforce Nexus - Based on US Data The combination of workforce composition information provided by Cuadrilla Resources (see Section 6.1 and in particular Table 6-1), and supplemental data drawn from the US shale gas industry, enables the development of in-depth, disaggregated information, covering the main three phases of development in natural gas extraction; namely pre-drilling, drilling and production. Several workforce loosely-defined areas (as per Table 6-8, e.g. an area can be "Geological Studies", or "Seismic" activities) can be identified for each of the three phases, with further comprehensive detail related to each position being shown in relation to the respective workforce area (see Table 6-8). The information in Table 6-8 is intended to describe as comprehensively as possible the types of job associated with the specific phases of work. As such, the table does not identify numbers of employees, or show whether the employees are usually employed directly by the natural gas extraction company or working for its third party contractors. However, it indicates the anticipated demand of skills for each of the three individual development phases in the industry and for each workforce area (with workforce areas listed in Table 6-8), and the Cuadrilla Resources skills is likely to develop into a similar workforce nexus. It can be noted that: for almost each workforce area (whereby workforce areas are listed in Table 6-8), the industry would require a large set of skills, varied sometimes from most basic (roustabout) to highly trained. variation between each of the phases is remarkable, with certain occupations only being required in a specific phase the drilling phase requires the largest number of different occupations. 27

The detail provided in Table 6-8 is intended to guide employers, educational providers, and similar stakeholders in their decisions related to the training needs that the a mature shale gas industry may have, and the related changes as it develops through the pre-drilling, drilling and production phases. Recommendation 6 - A workforce nexus of skills, outlined in this report, utilising, in part, data drawn from the mature US shale gas industry, and comprising in-depth disaggregated information on the types of jobs needed in the three phases of development (pre-drilling, drilling and production), could be used to guide employers, educational providers, and similar stakeholders in their decisions related to training needs for the industry. It is recommended that a similar workforce nexus for the UK industry is further developed, as the UK industry expands, to support the timely decisions related to the industry's needs for education provision, together with related local skills and employment decisions. An in-depth survey, similar to MSETC (2011), could be carried out in the Lancashire region, once the industry has become a little more established. This would have the advantage of identifying whether the skill requirements highlighted by this report hold during a more rapid phase of development, and, moreover, to identify the development of any skilled labour supply bottlenecks which may arise. 28

Table 6-8: Workforce Nexus for Natural Gas Extraction Workforce Area A1 Geological Studies A2 Seismic A3 Public Land Only A4 Mineral Rights A5 Permitting Process A. Pre-Drilling Phase B. Drilling phase C. Production Phase Associated Jobs Workforce Area Associated Jobs Workforce Area Associated Jobs Workforce Area Associated Jobs Geologist & Geophysicist Environmental Coordinator Electrician Petroleum Engineer Environmental Techmonitor Reclamation Tech Heavy Equipment Maintenance Hydro Geologist B3 Engineer Facility Petroleum Engineer Foreman General Construction Well Tender / Roustabout Construction Petroleum Chemist Superintendent Pipeline Operator (Hi BTU Gas) Cartographer Petroleum Engineer Welder Gas Control Centre GIS Technician Project Management CDL Driver Mechanical Engineering Pipe Fitter Safety Coordinator Well Head Roustabout Safety Coordinator C1 Natural Gas Production Gas Dispatcher Gathering Operations Compressor Operator Landman Welder Security Service Rig Operator Helicopter Pilot / Crew Welder Helper Surveyor Production Engineer B1 Seismic Crew Weld Inspector Diesel Technician Equipment Calibration Pipeline Communications Tech Offside Water Management Construction Heavy Equipment Operator Rig Move Monitoring Forester Weld Inspector Heavy Equipment Operator Production Foreman Lawyer X-Ray Tech CDL Driver Plugging Crew B4 Archaeology General Labour Mudman CDL Driver Drilling Biologist Boring Crew Welder Site Management Landman for drilling/leasing Environmental Tech- CDL Driver Monitor Reclamation C2 Landscaper-architect Lawyer Operational Landman Electrician Reclamation Environmental Inspection Para-legal Surveyor Environmental Coordinator General Construction Title-Abstract Civil Engineering Flagger Heavy Equipment Operator Lease Acquisition Logging Light Truck Delivery Civil Engineer Lease Admin Construction Manager Machine Stop Governmental Official Archaeologist Welder Pilot Driver Inspector Biologist Welder Helper Well Logging Sewage Treatment Community Affair Weld Inspector B5 CDL Driver C3 Lobbying B2 Hydraulic Overall Community Affairs / Public Corporate Development Compressor X-Ray Tech Fracturing and Directional Drilling Relations Construction Completion (Continued Environmental Technician General Labour Finishing / Service Rig Calibration Official on the next Lawyer Land Clearing Supervisor (Continued on page) Corrosion Technician Permitting Technician Foreman the next page) Safety Business Development / Sales Public Relations Division Pipeline Inspection Foreman CDL Driver 29

Table 6-8 (Continued) A. Pre-Drilling Phase B. Drilling phase C. Production Phase Workforce Area A6 Staking the Well A7 Water Management A8 Overall Associated Jobs Workforce Area Associated Jobs Workforce Area Associated Jobs Workforce Area Associated Jobs Roadman Site Management Flowback/Well Testing Fleet Manager Surveyor Petroleum Engineer Road Crews Human Resources Civil Engineering Tech Frac Crew Heavy Equipment Marketing Civil Engineer Heavy Equipment Operator CDL Driver C3 Noise Abatement Heavy Equipment Overall Lawyer Local Liaison Environmental Health and Safety Maintenance Tech Leasing Agent B5 (Continued Hydraulic CDL Driver Catering Purchasing (Right-of-Way) from Fracturing Land Clearing Mechanic MSHA Compliance previous IT Tech and Heavy Equipment Operator Perforating Crew B7 MSHA Training page) Local Liaison Completion Heavy Equipment Maintenance Overall Safety Coordinator Public Affairs Office Management Tech (Continued Logging from previous Roustabout IT/Computer Office Support-Admin - Non Tech Electrician page) Heavy Equipment Operations Purchasing Bi-Product Marketing / Sales Environmental Coordinator Crane Operations DOT Law Compliance Bi-Product Transportation Water transfer / Driver CDL Electrician DOT Law Training Compressor Operator Hydrologist (stream monitoring) Engineer Surveyor Facility Construction Mechanic Environmental Coordinator OJT Trainer Gathering Operations Private Water Supply Testing Coordinator Water Management Technician Welder Casing Crew Accountant Information Science Technology Environmental Inspection Flowback Analyser/ Well Testing C4 High BTU Gas / Gas Processing Instrumentation / Reader Tech IT Technician Human Resources CDL Driver/ Water Hauler IT Trainer B6 Water Management Hydrologist/ Water Supervisor Completion-chemist Engineer Pigging Technician Pipeline Operator Pipeline Tech Environmental Compliance Processing Engineer Water Testing / Quality Processing Loader/Tester Safety Coordinator Processing Maintenance/Mechanic (Source: MSETC, 2011: 53-60) Water Re-use Supervisor Processing Operation Water Re-use Technician Processing Supervisor / Manager Abbreviations: GIS - Geographic Information Systems; CDL - Commercial Driver's Licence; MSHA - Mine Safety and Health Administration (US); DOT - Department of Transport (US); OJT - On-the-Job; Tech - Technician; BTU - British Thermal Unit (unit of measure for energy); High BTU Gas - Fuel gas with heating values of pipeline specification (about 900-1000 BTUs per standard cubic foot) (Lee I., 2007:29); Roustabout is a job classification in the natural gas and oil rig industry related to a worker who performs various jobs that require little training. 30

6.4. Attractiveness of Cuadrilla as a local employer of choice Annual Wage Compared to Average in Industry Wages pertaining in the extraction of crude petroleum and natural gas industry have consistently been amongst the highest in the UK (see Table 6-9). This level of pay is more than double the national average of 500.7 (ASHE 2010). Thus, the energy sector has a clear recruitment advantage in terms of remuneration. Table 6-9: Highest Paid Industry Groups, UK, April 2011 Rank in Rank in Median Gross Highest Paid Industry Groups 2011 2010 Weekly Pay ( ) 1 1 Extraction of crude petroleum and natural gas 1,084.2 2 3 Mining and coal and lignite 788.6 3 10 Programming and broadcasting activities 771.8 4 6 Mining support service activities 768.0 5 4 Manufacture of tobacco products 737.8 6 9 Scientific research and development 711.6 7 5 Computer programming, consultancy and related activities 707.4 8 7 Information service activities 690.5 9 11 Activities auxiliary to financial services and insurance services 675.4 10 15 Financial service activities, except insurance and pension funding 647.7 (Source: Patterns of Pay, 1997 to 2011 ASHE Results, 2011) Cuadrilla's yearly average employee wage is calculated to be 63,000 in 2012. This figure is inflated due to the current over-representation of senior positions within the company, at this early stage of development, whereas the data presented in FIG 6-6 and Table 6-4, highlights how the expansion of the industry would be accompanied by a disproportionate increase in operatives (particularly junior) and more technical workers, whose remuneration levels would be lower, and therefore the organisational average pay would necessarily decline. Nevertheless, for comparison purposes, the average yearly wage per employee at the two most visible technologically advanced organisations in the region, BAE and Sellafield, stood at 60,180 and 59,132 respectively, in 2011 (BAE, 2011:124; Sellafield 2012:22). 7 Hence the Cuadrilla remuneration package would look at little better than comparable at present, in relation with existing local employers who may act as competitors for locally available skilled labour, of the type attractive to the emerging shale gas industry. Moreover, Cuadrilla has also reported that it expects that its third party service providers will have similar remuneration packages. 7 The data available does not allow the authors to calculate whether these figures are for the wage of a full-time employee (as opposed to being mixed with part-time employees, or staff on different types of contract), and periods of comparison as well as exchange rates may intervene in the precise calculations, hence these figures can only be expected to be indicative estimates of average yearly employee wages.

Broad categories of Cuadrilla occupational and skill sets, complete with approximate remuneration levels, are included in Table 6-10. The specific value-added of the information in this table is that, it links the seven broad occupations, with their approximate remuneration, and, most importantly, the skills / qualifications / experience needed. Job descriptive information of this type is of relevance to job applicants who may be interested in the remuneration profile as well as job requirements in terms of training and experience in the industry. Moreover, the information in Table 6-10 offers the predictability that stakeholders such as educational providers may need in terms of, for instance, type and length of courses estimated by Cuadrilla to be needed. Table 6-10: Workplace Assessment of Cuadrilla in Bowland Shale, Lancashire, 2012 Type of Employee Compensation '000 /year Management 100 to 150 Technical - Senior level Technical - Junior level Operational - Senior level Operational - Junior level Administration - Senior level Administration - Junior level 80 to 120 30 to 60 60 to 120 30 to 50 30 to 50 20 to 30 (Source: Cuadrilla Resources, September 2012) Examples of Positions Directors and Senior Management for Health and Safety, Human Resources, Public Relations, Operations, Engineering, Commercial, Finance Senior Geologists Senior Geophysicists Senior Petroleum Engineer Senior Environmental Engineer Geologists Engineers Environmental Engineers Drilling Supervisors Rig Managers Drillers Frac(king) Supervisors Test Supervisors Production Supervisors Rig Staff Mechanics Electricians Frac(king)/Test Equipment Technicians Well Tenders Accountants Administrators in Human Resources, Health and Safety, Public Relations, Office Support Entry level positions in Finance, Office administration and support, Health and Safety, Human Resources etc. Required Training & Experience Minimum 4 years university 10 years experience Minimum BSc. in Engineering and Geosciences 5 years experience Minimum BSc. in Engineering and Geosciences No prior experience, trained by company 2 year Petroleum Technology degree would be helpful Minimum 5 years experience 2 year Petroleum Technology degree would be helpful No prior experience, trained on the job Minimum 2 years university Minimum 5 years experience - (Training not specified) No prior training required, trained on the job. 32

Recruitment, Training and Career Development Cuadrilla have already recruited in Lancashire, based on local adverts (such as via the Blackpool Gazette), alongside national advertising. In its most prominent to-date recruitment exercise in Lancashire, the company report being very satisfied with the skills available in the local area. In fact, Cuadrilla have rated their level of satisfaction with the local labour force in Lancashire at 4 on a scale starting at 1 for least satisfied, and increasing to 5 for highest level of satisfaction. In this case, the process of selection drew 140 job applications, and consisted of a very generous offer of interviewing all the applicants. Although resources may not allow this generous offer to be repeated in the future, the resulting process has occurred in a very satisfactory employment of 7 staff from Lancashire, with a small turnover of only one job, hence the rating of 4 out of 5 for employment. With regard to employees hired directly by Cuadrilla, the company has expressed a specific and keen interest to recruit from the local area, investing into on-the-job training (e.g. offered for starting positions for a needed length of about 6 months), as well as to grow organically their employees whereby employees are given time to accumulate the necessary experience before being promoted internally. Changes in workforce planning could arise from technology, geological estimations and other related factors which alter the workplace needs assessment of the industry in Lancashire, and overall, in UK. For instance, as mentioned in Section 1, recently Cuadrilla has re-estimated the size of the available Bowland Shale reservoir of gas, which is currently expected to be the largest pocket of shale gas in Europe (see Section 1 in this report). Moreover, within a timespan of just under a year, technological advances have meant that the Cuadrilla expects with more certainty to be working closer to the highest of the three development scenarios previously presented in September 2011 by the Regeneris report (see Table 6-11). Yet, these scenarios can be up-graded too, in view of further technological changes that imply Cuadrilla could indeed develop around to 800 wells, but from maybe just 40 well pads as opposed to the 80 well pads estimated less than a year ago. 33

Table 6-11: Three Scale Scenarios of Development at Cuadrilla as of Regeneris Report 2011 Pads 20 (Low) 40 (Medium) 80 (Maximum) Number of years of drilling if all at peak rate 3.3 Say 3.5 6.7 Say 6.5 13.3 Say 13.5 Adjust drilling years to account for build up Year 1-20 Year 2-30 Year 3-40 Year 3,4,5-40 Year 6-20 Year 1-20 Year 2-30 Year 3-40 Year 4-7 - 60 Year 8-40 Year 1-20 Year 2-30 Year 3-40 Year 4-14 - 60 Year 15-40 Year 9-30 Year 16-20 So 6 years=190 wells (Source: Regeneris, 2011:40) So 9 years=400 wells So 16 years=810 wells It is believed that these types of changes in Cuadrilla's development in Lancashire have a substantial potential to alter the workforce plans exposed in this section, as well as, the gas industry projections on a wider scale. Therefore, it is recommended that relatively frequent re-assessments similar to this report occur at various points in the future, if the workforce planning findings outlined in this report are to be updated in line with developments. Challenges to Recruitment Challenges posed to the recruitment of suitable workers for the shale gas industry, in the US, appear to have fallen into three broad categories (MSETC, 2011:28): Personal characteristics i.e. finding employees with a good work history, free from drugs, and with a clean criminal record Job design i.e. there seems to be a problematic resistance for some employees to working the hours specified in the contract Education and skills issues i.e. it is hard to find the employees possessing sufficient interpersonal skills, qualifications (degree or certification), technical skill and/or experience There is little an employer can do about the first of these factors applicants either do or do not have these characteristics but the remaining two factors can be influenced by reconsidering working patterns and employment contracts, alongside enhanced educational and training programmes. In terms of the education and skills requirements, FIG 6-8 illustrates that US employers estimate that perhaps 15% of tasks required no formal education or training, 10% required a minimum of a degree level qualification, 27% required a vocational degree and 40% percent trade or industrial certification. 34

FIG 6-8: US Shale Gas Employers Stated Educational and Training Requirements for Their Workforce (Source: MSETC, 2011:28). Thus, in order to take advantage of the shale gas employment opportunities, prospective applicants have to possess a significant range of pre-existing education and skills, acquired either through previous experience and/or training programmes. Notably, certification or lower level qualifications, the largest part of it (40%) could be obtained on-site or via day-release, whereas degree-level qualifications (at 9%) is still a significantly large proportion highlighting that the industry requires the provision of specific and adequate education and training programmes. Presenting the same data, but this time taking into account the temporal distribution of the demand for different occupational and skill sets across a medium term production timeline, FIG 6-9 indicates how workforce planning is necessary to resolve potential skills bottlenecks at different points in time, for the successful development of the industry. 35

FIG 6-9: Estimated Pennsylvania Occupational Requirements 2011-2014: Median Development Scenario Workers (Source: MSETC, 2011:47). Note: CDL relates to a certificate for a driver. An Insight into Job Descriptions and their Role in Employee Motivation Challenges to recruitment may also arise from the ways in which the shale gas industry motivates its workforce via the type of recruitment packages on offer in the Lancashire/UK labour market, which may differ significantly from their US counterparts. Cuadrilla management sources have indicated that the type of jobs that would be available could be described as having specific combinations of characteristics depending mainly on whether they were office-based or field-based jobs. Additionally, there is a clear desire from the management to position Cuadrilla's remuneration strategy amongst the most generous in an already high wage industry (see Table 6-9). However, wage levels are not the only attractor for potential employees. Accordingly, Cuadrilla management also indicated that the company would be offering as part of some or most of its employment contracts the following job description characteristics and organisational practices: cost flexible practices are used, such as (individual or group) pay-related to performance or share ownership awards. Pay is usually determined individually via line managers. 36

functional flexibility via training is used, such as via on-the-job training that is used extensively, training staff to increase current skills, or other training programmes, but apprentices are not offered currently. Work may be subcontracted. teamwork is used extensively quality circles are used, whereby meetings offer employees opportunities to discuss deicsions related to improving product quality working patterns: standard full-time jobs are mostly in the office; many of the field-jobs would involve some form of shift work such as 28-day on/off, or 3-day rotation, while some workers can be employed on part-time contracts internal applicants are given preference over external applicants for promotion or filling job vacancies, which is a commonly-used organisational practice that can ensure talent is homegrown and encourages employees to make investments in accumulation of company-specific human capital. There are, however, a number of other areas where Cuadrilla may wish to consider including in their recruitment packages: at present, it would appear that there is limited or no temporal flexibility (e.g. no choice in terms of changing start or end working times via flexitime) or family-friendly practices (e.g. term-time only work or delayed start of the working day for parents). These limitations apply especially if the respective job requires shift work or a rotation schedule, whereas they could be relaxed for office staff. Given the difficulty in the UK in arranging adequate (and affordable) childcare provision, and the emphasis placed upon work-life balance by the previous government, these might be areas for further consideration for any employer operating within the UK context. There would appear to be limited numerical flexibility, such as with regards to not allowing full-time staff to shift to part-time or vice-versa There would appear to be limited use of temporal or location flexibility, such as very limited use of working from home or teleworking. In many instances, this is unavoidable i.e. drilling has to occur at the well pad but for other service operations, in particular, consideration of these innovations may be possible. Job security is seen as a natural projection of long-term industrial activity envisaged in the area over the next two decades. However, the traditional working pattern in the industry with an emphasis upon short term working and contracted-out employment options might not offer the type of security of employment that specific types of highly skilled employees may find attractive. The gradual nature of planned expansion in Bowland Shale would provide the option of including a greater element of security of work, as a number of 37

successive short term contracts could be rolled together into a longer, fixed term, or even permanent option. With regard to perceived importance of attracting and motivating their workforce, Cuadrilla management have ranked highly the level of remuneration, typically expected to be at top level among other pay packages. However, remuneration tends not to be the over-riding factor for many prospective employees. Similarly, some job description elements may feature differently in terms of people's preferences, depending on variations in cultural, institutional, or legislative settings such as variations between the UK and the US. Therefore, an employer like Cuadrilla, with previous experience in the US labour market, may want to consider the way the job description characteristics and organisational practices could be designed as to fit best the workforce in the UK, such as with regard to remuneration packages for certain (or all) workers including job security (which may be traded-off against high pay levels), or various ways of ensuring a desirable work-life balance (to compensate for shift work not being, generally, a desired working pattern). Conclusion The workforce planning data, presented in this section, highlights the complexity of shale gas production, with hundreds of different occupational and skill requirements for the successful exploration, drilling and production in a single well. Given the uncertainty surrounding the development path of an infant industry, it is unsurprising that previous reports have sought to concentrate upon the prediction of the total size of the workforce; a task which is not straightforward, as examples drawn from other studies have shown. This report has sought to go further, by disaggregating these predictions and thereby seeking to establish more precise forecasts for specific occupational and skill types. This has necessitated grafting data drawn from a decade or more of experience within the mature shale gas industry of the USA, onto estimates produced for the UK market. Whilst the results must be read with caution, given the different circumstances in which US and UK producers operate, this section nevertheless indicates where the demand for skills is likely to occur for both direct and indirect (sub-contracted) workers. The importance of creating this type of workforce planning framework (or nexus) is twofold. Firstly, it enables industry, potential employees and local educational establishments, to anticipate the skills profile which will be required by the industry within a specific time period, and, to enable courses to be developed and enacted in order to fill any skill shortages. There is a time lag involved in creating, quality controlling and running educational and training courses, which necessitates some 38

forward planning in order to produce a suitable number of skilled and qualified individuals in advance of industry labour requirements. The failure to do so would create potential skill bottlenecks, which may increase the cost of production, as either capital substitution or other forms of attracting labour from other sources (typically via relocation or raising wages) may be necessitated. Secondly, the planning framework is additionally important for the local community, as it seeks to maximise the advantage accruing to the area in terms of jobs and a boost to the local economy. The more local people understand about the type of jobs which are likely to be offered in the near future, and the type of skills required, the more time local students have to complete courses, and/or workers be retrained, in order to take advantage of the opportunities. Similarly, the more time that educational and training providers have to develop courses and programmes to meet these needs, the more likely that that will be of high quality and can be developed in conjunction with industry input where appropriate. 39

2. The Lancashire and North West Economy An Overview 8 Key Demographic Facts. The North West is the third most populous region in England, after only London and the South East, with a population of 6.9 million people. Its size of 14,100 square kilometres represents approximately 11% of the total area of England, and 6% of UK landmass. This is relatively geographically small, for a regional economy, but given the large population figures contained in the area, the North West has the highest regional population density outside London. Moreover, whilst the region contains a range of significant rural habitats including the Lake District National Park, which comprises 18% of North West land area - it is heavily urbanised, with over 87% of the North West population living in urban areas (ONS Regional Trends, 2011). The region benefits from a high level of infrastructure and transportation links, including a number of motorways, large regional airport (in Manchester) alongside a number of smaller secondary airports (including Liverpool), access to sea transportation (via Liverpool, Ellesmere Port and Southport), and with the high speed, West Coast railway line running through the heart of the area. 7.1. Gross Value Added and Labour Force Indicators The North West area of Britain, which includes the (Greater) Lancashire area, is the third largest in terms of its contribution to the national (UK) economy. The total UK Gross Value Added (GVA) 9 was 1,256 billion in 2009, of which the North West generated 116.4 billion, thus representing 9.3% of the total (ASHE 2012). Only two other regions in England - namely, London and the South West possessed larger regional economies. Indeed, to place the size of the North West economy in context, it is approximately as large as Scotland and Northern Ireland taken together (see Table 7-1). Moreover, the North West appears to have weathered the recent economic slowdown better than the UK as a whole, as the most recent published (2010) figures indicate that its (now slightly smaller) 102.5 billion GVA, represented around 10% of the entire UK economy (ONS Regional Profile, 2012). 8 Lancashire (12 districts) comprises the following, in alphabetical order: Burnley; Chorley; Fylde; Hyndburn; Lancaster; Pendle; Preston; Ribble Valley; Rossendale; South Ribble; West Lancashire; and the Wyre. Lancashire (14 authorities) also includes Blackburn with Darwen; and Blackpool. 9 Gross value added (GVA) as an indicator of wealth creation measures the contribution to the economy of each producer, industry or sector and is generally regarded as the best measure of total economic activity within an area. 40

Table 7-1: Regional and Sub-regional Workplace Based Gross Value Added (GVA), UK, 2009 Country / Region Total GVA As Percent of Total GVA (, million) (GVA Britain = 100%) United Kingdom 1,256,932 100.0 England 1,061,973 84.5 Wales 43,981 3.5 Scotland 102,607 8.2 Northern Ireland 27,279 2.2 North East 39,549 3.1 North West 116,463 9.3 Yorkshire and The Humber 86,821 6.9 East Midlands 77,982 6.2 West Midlands 90,168 7.2 East of England 106,888 8.5 London 269,662 21.5 South East 179,317 14.3 South West 95,123 7.6 (Source: Annual Survey of Hours and Earnings ASHE, 2012) In terms of sub-regions within the North West, Greater Manchester is the largest single component, generating about 40% of the region's GVA (ibid.). The 12 district Lancashire economy, by contrast, is worth approximately 18.3 billion, representing one fifth of the economy of the North West of England, and 1.46% of UK GVA (LLC, 2009). Consequently, Lancashire and the North West region have substantial regional economies, and are therefore favourable locations within which any inward investors may wish to locate. In terms of GVA per capita, however, the comparison is not as favourable, as the 12-district Lancashire area has, for a decade, consistently endured a value approximately 20% lower than the UK average; although, if a broader, 14-authority measurement of Greater Lancashire is used, most of this gap disappears (LCC, 2009). In terms of the North West as a whole, during the period 1999-2010, GVA per capita has remained 15% lower than the UK average (see Table 7-2 and FIG 7-1). Consequently, whilst the North West is a prosperous segment of the UK economy, it has typically under-performed in terms of wealth created per resident, and consequently, any incoming industry which has the potential to contribute towards narrowing this differential will make a notable contribution to the regional economy. 41

Table 7-2: GVA per Head as Percentage of UK, 1999-2010 Year / Region 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 North West 88.3 87.9 87.8 87.3 86.8 86.3 86.0 85.5 85.2 84.8 84.4 84.9 North East 77.3 77.2 77.2 77.1 77.5 77.9 78.1 77.8 77.1 76.6 76.5 76.9 Yorkshire and the 87.9 87.6 87.4 87.2 86.8 86.3 85.4 84.7 83.9 83.2 82.6 82.6 Humber East Midlands 90.8 90.3 90.3 90.0 90.1 89.7 89.3 88.8 88.4 87.8 87.6 88.3 West Midlands 90.0 89.8 89.5 88.6 87.7 87.0 86.1 85.4 84.9 83.8 83.0 83.3 East of England 96.1 96.2 96.2 96.0 96.2 97.1 97.1 96.6 96.0 94.3 92.7 92.8 London 160.1 159.8 158.9 160.4 161.7 162.2 163.6 165.5 167.4 171.0 173.9 171.1 South East 106.1 106.8 107.5 107.6 107.4 107.3 107.1 106.8 107.2 106.9 106.3 107.1 South West 91.8 91.7 92.1 92.2 92.4 92.5 91.9 91.7 91.3 91.0 90.9 91.2 (Source: LCC, 2009). Note: Figures are in relation to the total UK GVA per head each year which is taken to represent 100(%). FIG 7-1: GVA per Head as Percentage of UK Total, 1999-2010 180 160 140 120 100 80 60 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 North West North East Yorkshire and the Humber East Midlands West Midlands East of England London South East South West (Source: LCC, 2009). Note: UK total GVA per head each year is shown as the horizontal line at 100(%). Productivity. The difference between the way the region is relatively positively positioned with regard to total GVA (third largest in UK and in England), as opposed to GVA per head (among the lowest in the nine English regions - see FIG 7-1), can be explained by productivity figures. The North West average productivity reached only 88% of the UK average productivity rate in 2010, while withinregion estimates ranged from as low as 65% in Blackpool to just above national average at 102% in Cheshire (ibid.). There does not appear to be a marketed difference in the regional characteristics investigated in this report between the North West and other regions, except for a slight paucity of higher-end industry (see Table 7-9) and of people employed in the higher-end sector (see Table 7-12), 42

in addition to a slight imbalance of skills in favour of lower-skilled supply of labour (see Table 7-13). The gap reported, in relation to lower average productivity in the North West, may relate to a combination of these small imbalances with regard to the industrial composition and the skills profile of the North West when compared to UK averages. In the absence of further data, it is not possible to ascertain precisely which of these factors has the dominant effect. Nevertheless, since shale gas has high capitalisation and attracts a high-skilled workforce, for which high human capital investment is also required, the location of the shale gas industry in the area is expected to make a positive contribution to closing the North West productivity gap. The region's wealth, measured by gross disposable household income (GDHI) was 14,200 per head in 2010, also ranking among the lowest when compared to the UK average (ibid.). There is some notable within-region variation in GDHI too, the two extremes being, at the lowest, the region of Blackburn with Darwen at 11,350 (72% of national rate), and, at the highest, the Cheshire East region at 17,190 (109% of national rate) (ibid.). The total population resident in Lancashire was estimated at 1.2 million people in 2010, representing around 1.9 % of the total population in the United Kingdom, whereas the North West population was more than five times as large, at 6.9 million people, and represented 11.5% of the UK total population. Both Lancashire and the North West followed the national population distribution trends with regard to gender (50.8% female and 49.2% male - see Table 7-3) as well as with regard to agegroup demographics (see Table 7-4). Table 7-3: Total Population Resident in Lancashire and North West Lancashire North West Great Britain (numbers) (%) (numbers) (%) (numbers) (%) All people 1,169,300 1.9 6,935,700 11.5 60,462,600 100.0 Males 575,300 49.2 3,416,400 49.3 29,758,900 49.2 Females 594,000 50.8 3,519,300 50.7 30,703,700 50.8 (Source: NOMIS, 2012 reporting ONS 2010 mid-year population estimates) Table 7-4: Population Demographics (Aged 16-64), Lancashire, 2010 Lancashire (numbers) Lancashire (%) North West (%) Great Britain (%) All people aged 16-64 744,800 63.7 64.6 64.8 Males aged 16-64 372,400 64.7 65.6 65.8 Females aged 16-64 372,400 62.7 63.6 63.8 (Source: ONS mid-year population estimates) Notes: % is a proportion of total population. Employment indicators are below UK average. There are a total of 0.74 million people of working age (16-64 years old) in Lancashire - a potential workforce representing 64% of the total Lancashire 43

population - which is in line with the North West and UK indicators (see Table 7-4). However, the North West had an employment rate at 68.7 percent, which was below the UK average of 70.3% in the fourth quarter of 2011, while the North West unemployment rate at 9.3% was above the UK average at 8.4% (ONS Regional Profile, 2012). More recent UK unemployment statistics, related to the period April-June 2012 (which, at the time of this report, is the most recent statistical evidence published), show that the national UK economy had an unemployment rate of 8.0 %, with 2.56 million people unemployed (46,000 fewer than the previous quarter) out of those economically active (Labour Market Statistics, 2012). Over the same period of time, the UK inactivity rate was 22.6 % (only 0.3 % lower than the previous quarter), with 9.10 million people aged between 16 and 64 being economically inactive (fewer by 117,000 when compared to the previous quarter (ibid.). Over the same period, the North West has suffered slightly more from unemployment, with a rate of unemployment of 9.1% (compared to the 8.0% UK average) being third-highest among UK region (after North East at 10.4% and the Yorkshire and the Humber at 9.8%). Further data shows that in the North West there were 319,000 unemployed people, with a rate of inactivity in the area of 23.2% being slightly higher than the UK average. Lastly, disaggregated data over more than a year (April 2011-May 2012) suggest that Lancashire has had 78.0% economically active people, which is above the national average of 76.5%, also with a favourably higher labour force participation rate (72.1%, compared to 70.2 nationally), and with an unemployment rate in Lancashire at 7.4% being lower than national unemployment rate at 8.1% over the period (see Table 7-5). The labour force statistics for the region, therefore, paint a picture of an economy where a higher proportion of people than the national average are in the labour force, rather than in retirement or studying. Table 7-5: Labour Supply in Lancashire, April 2011-May 2012 Lancashire (numbers) Lancashire (%) North West (%) Great Britain (%) Economically active^ 590,100 78.0 74.9 76.5 In employment^ 546,200 72.1 68.2 70.2 Employees^ 458,900 61.2 59.5 60.4 Self-employed^10 83,100 10.4 8.3 9.4 Unemployed^^ 43,900 7.4 8.9 8.1 (Source: ONS annual population estimates) Notes: ^ numbers are for those aged 16 and over, % are for those aged 16-64 ^^ numbers and % are for those aged 16 and over. % is a proportion of economically active. 10 Interestingly, the Lancashire area has a higher proportion of self-employed people (10.4%) than the national average (9.4%). 44

7.2. Regional Business Activity The North West has the largest number of active enterprises per region, being surpassed outside London only by the East and the South East regions. This data portrays the region as a vibrant place for business, with a good base of entrepreneurial spirit. Indeed, North West data on business birth rates, at 9.9% of all active companies can be ranked among the best compared to other regions, and it is on-the-par with the UK average at 10.2. The North West death rate at 13.5 is relatively above the UK average at 12.9. These figures show that the North West fits in line, by a large, with the average figure of business stock regeneration (see Table 7-6). Table 7-6: Regional and Sub-regional Business Activity - Business Births and Deaths Country/ Region Active enterprises 1 (Thousands) Number of births (Thousands) Birth rate 2 (%) Number of deaths 3 (Thousands) Death rate 2 (%) United Kingdom 2,300.4 235.1 10.2 297.4 12.9 England 2,001.9 207.5 10.4 261.9 13.1 Wales 88.2 7.5 8.5 11.0 12.5 Scotland 151.3 15.5 10.3 19.1 12.6 Northern Ireland 59.0 4.6 7.8 5.4 9.1 North East 62.0 6.0 9.6 8.1 13.1 North West 228.2 22.7 9.9 30.9 13.5 Yorkshire and The Humber 163.2 16.6 10.2 22.2 13.6 East Midlands 153.6 14.3 9.3 19.5 12.7 West Midlands 186.2 17.8 9.6 24.2 13.0 East of England 233.1 22.6 9.7 27.9 12.0 London 403.1 52.8 13.1 60.3 15.0 South East 369.9 36.9 10.0 45.2 12.2 South West 202.6 17.8 8.8 23.5 11.6 (Source: ASHE 2012, based on the Inter-Departmental Business Register) Notes: 1 Enterprises registered for VAT and/or PAYE. Definitions of active enterprises, Births and Deaths are available in the Business Demography 2010 release. 2 Birth and Death rates are expressed as a percentage of active enterprises. 3 The Deaths counts reported in this table are provisional. Similarly, business registration and de-registration rates for Lancashire and North West show the regions to be fitting the national business registration and de-registration profile (see Table 7-7). 45

Table 7-7: Businesses in Lancashire, 2007- Registration and Deregistration Lancashire (numbers) Lancashire (%) North West (%) Great Britain (%) Registrations 3,345 9.4 10.6 10.2 De-registrations 2,605 7.3 7.5 7.3 (Source: BERR - VAT registrations / de-registrations by industry) Note: VAT Registered Businesses. % is a proportion of stock (at end of year) The private sector is relatively under-represented in the North West. When ranging the number of private businesses in proportion to the size of the population present in the area, the number of businesses in the private sector was 803 per 10,000 adults in the North West, giving the North West the sixth highest position out of the nine sub-regions in England (FIG 7-2). In 2011, this was below the national average of 897 private businesses per 10,000 adults, and also below the average in England at 927 private businesses per 10,000 adults. This indicates that North West would benefit from private investment in the area, such as the potential location of shale gas industry here. FIG 7-2: Number of private sector enterprises per 10,000 adults, by UK region (Source: Department for Business, Innovation and Skills, 2011) 46

North West distribution of businesses by employment size (total headcount of employees) shows that in 2010 there were just under 205,000 businesses in the North West, representing a proportion of just under 10% of total businesses in the UK and ranking fourth out of all sub-regions in England by share of businesses (see Table 7-8). Thus, this is another signal of a vibrant base of business present in the North West. Within the North West region, at the local authority level, two locations had the largest numbers of enterprises: Preston (4,305 enterprises) and Lancaster (3,985) (LCC, 2009). Table 7-8: Regional and Sub-regional Business Activity - Size of Business, 2010 Employment Size Micro- Small Medium Large Total SMEs Business Businesses Business Businesses Country/ 0-9 Region % b 10-49 a % b 50-249 a % b 0-249 a % b 250+ a % b Total % of UK United Kingdom 1,861,595 88.6 196,525 9.4 33,600 1.6 2,091,720 99.6 8,650 0.4 2,100,370 100.0 England 1,595,755 88.8 165,880 9.2 28,740 1.6 1,790,375 99.6 7,535 0.4 1,797,910 85.6 Wales 79,650 89.1 8,210 9.2 1,235 1.4 89,095 99.7 275 0.3 89,370 4.3 Scotland 126,040 87.2 15,275 10.6 2,610 1.8 143,925 99.6 640 0.4 144,565 6.9 Northern Ireland 60,150 87.8 7,160 10.4 1,015 1.5 68,325 99.7 200 0.3 68,525 3.3 North East 48,015 85.9 6,435 11.5 1,120 2.0 55,570 99.5 295 0.5 55,865 2.7 North West 179,960 87.8 20,635 10.1 3,510 1.7 204,105 99.6 885 0.4 204,990 9.8 Yorkshire and The Humber 129,825 87.2 15,735 10.6 2,690 1.8 148,250 99.6 605 0.4 148,855 7.1 East Midlands 126,260 88.1 13,595 9.5 2,470 1.7 142,325 99.3 535 0.4 143,310 6.8 West Midlands 151,590 88.4 16,365 9.5 2,760 1.6 170,715 99.6 695 0.4 171,410 8.2 East of England 191,100 89.5 18,550 8.7 3,145 1.5 212,795 99.6 840 0.4 213,635 10.2 London 296,845 89.5 27,460 8.3 5,480 1.7 329,785 99.5 1,750 0.5 331,535 15.8 South East 295,635 89.5 28,530 8.6 4,885 1.5 329,050 99.6 1,325 0.4 330,375 15.7 South West 176,525 89.2 18,125 9.2 2,680 1.4 197,330 99.7 605 0.3 197,935 9.4 (Source: based on ONS, 2010) Notes: a shows numbers of businesses in the (sub)region. b shows percentage of businesses out of the total in the respective sub(region). Small and Medium Enterprises (SMEs) accounted for 99.6 % of total businesses in the North West in 2010 (see Table 7-8). Similar to the distribution of business by size at national level and at regional level for other regions, the vast proportion of SMEs in the North West are micro businesses, defined as a business employing up to 10 employees. Micro business amounted to 86% of all businesses located in the North West. Large businesses, employing over 250 or more employees, are represent only 0.4% of total businesses in the North West, and around a similar percent in the UK and other 47

regions. Therefore, the North West region has a distribution of business by size that is very similar to the national profile. Industrial Profile. Key facts related to the North West industrial profile (see Table 7-9): - The North West contribution to the UK s manufacturing industry is the largest among all regions - 13% of manufacturing GVA in 2008 (ONS Regional Trends, 2011) - The North West had third largest research and development expenditure by businesses in the UK. Also, almost 78 per cent of the region s total research and development expenditure was in businesses, which represented the second highest proportion of any region in the UK ONS Regional Trends, 2011) - 150 sites (or 16 % of the UK total) generating electricity from renewable sources were located in the North West, out of the total 939 sites in England. This was more than in any other English region (ONS Regional Trends, 2011) - in parts of the North West, such as Blackpool, Blackburn with Darwen, or Pendle and Wyre, there is a larger base for a visitor economy, and, subsequently, more retail and accommodation/ food service businesses as proportion of total businesses - compared to the national average of 6%, agriculture accounts for more than 10% of the economy in Lancaster, Ribble Valley (16.9%), West Lancashire and Wyre (see Table 7-9) - in Lancashire (14 authorities), there are higher proportions of businesses in lower-skill sectors such as agriculture, production (which includes manufacturing), retail or motor sales. In contrast, the high-value sectors such as information and communication have lower proportions in Lancashire than the national average, with the exception of Wyre (see Table 7-9). 48

The professional, scientific and technical activities sector is under-represented in the North West. Out of the total nine regions in England, the North West is ranked eighth in terms of its population of businesses active in the professional, scientific and technical sector (see FIG 7-3). The share of these businesses amounts to 11.2%, being below the national average of 13.4%, and below the higher-thannational average in England of 13.9%. The North West may, thus, benefit from the location in this area of an industry that encourages training of employees and business activity in this sector, which tend to be higher skilled, earn higher wages, and have largely better employment conditions. FIG 7-3: Share of Enterprises in the Professional, Scientific and Technical Activities Sector (Source: Department for Business, Innovation and Skills, 2011) 49

Table 7-9 Industrial Profile of the North West, by Business Number and Percent All enterprises Agriculture, forestry and fishing Production Construction Motor trades Wholesale Retail Transport and storage BRN CHR FYL HYND LANC PEND PRES RIB V ROS S RIB W LANC Wyre Lancashire (12 districts) BD BLKP Lancashire (14 authorities) N 2,160 3,640 2,855 2,060 3,985 2,465 4,305 2,955 2,300 3,355 3,885 3,675 37,640 3,790 3,165 44,595 205,705 2,081,690 %* 4.8 8.2 6.4 4.6 8.9 5.5 9.7 6.6 5.2 7.5 8.7 8.2 84.4 8.5 7.1 100.0 - - N 55 210 175 55 435 170 190 500 100 180 445 415 2,930 75 15 3,020 10,800 122,520 % 2.5 5.8 6.1 2.7 10.9 6.9 4.4 16.9 4.4 5.4 11.5 11.3 7.8 2.0 0.5 6.8 5.3 5.9 N 245 245 160 255 255 275 240 175 240 270 305 255 2,920 420 215 3,555 14,575 129,135 % 11.3 6.7 5.6 12.4 6.4 11.2 5.6 5.9 10.5 8.0 7.9 6.9 7.8 11.1 6.8 8.0 7.1 6.2 N 290 480 300 265 475 285 500 325 295 495 500 535 4,745 345 345 5,435 24,110 253,340 % 13.4 13.2 10.5 12.9 11.9 11.6 11.6 11.0 12.9 14.8 12.9 14.6 12.6 9.1 10.9 12.2 11.7 12.2 N 95 185 110 100 160 105 185 110 85 165 190 160 1,650 190 120 1,960 7,450 65,695 % 4.4 5.1 3.9 4.9 4.0 4.3 4.3 3.7 3.7 4.9 4.9 4.4 4.4 5.0 3.8 4.4 3.6 3.2 N 140 175 115 135 175 160 245 135 150 175 230 175 2,010 275 135 2,420 11,080 100,390 % 6.5 4.8 4 6.6 4.4 6.5 5.7 4.6 6.5 5.2 5.9 4.8 5.3 7.3 4.3 5.4 5.4 4.8 N 270 345 290 255 450 295 470 305 235 315 320 460 4,010 530 490 5,030 20,795 182,985 % 12.5 9.5 10.2 12.4 11.3 12.0 10.9 10.3 10.2 9.4 8.2 12.5 10.7 14.0 15.5 11.3 10.1 8.8 N 50 170 80 90 140 90 120 95 105 145 200 110 1,395 105 80 1,580 6,900 64,830 % 2.3 4.7 2.8 4.4 3.5 3.7 2.8 3.2 4.6 4.3 5.1 3.0 3.7 2.8 2.5 3.5 3.4 3.1 North West Great Britain Accommodation and food services N 155 205 195 170 310 140 250 200 130 145 210 230 2,340 245 460 3,045 13,340 127,500 % 7.2 5.6 6.8 8.3 7.8 5.7 5.8 6.8 5.7 4.3 5.4 6.3 6.2 6.5 14.5 6.8 6.5 6.1

Table 7-9. Continued. BRN CHR FYL HYND LANC PEND PRES RIB V ROS S RIB W LANC Wyre Lancashire (12 districts) BD BLKP Lancashire (14 authorities) North West Great Britain Information and communication Finance and insurance Property Professional, scientific and technical Business administration and support services Public administration and defence Education Health N 90 180 210 60 180 95 185 95 100 180 170 145 1,690 135 145 1,970 11,315 157,465 % 4.2 4.9 7.4 2.9 4.5 3.9 4.3 3.2 4.4 5.4 4.4 3.9 4.5 3.6 4.6 4.4 5.5 7.6 N 45 65 50 40 50 35 165 50 35 75 55 45 710 140 50 900 5,200 44,505 % 2.1 1.8 1.8 1.9 1.3 1.4 3.8 1.7 1.5 2.2 1.4 1.2 1.9 3.7 1.6 2.0 2.5 2.1 N 65 105 145 60 105 70 220 95 65 100 125 110 1,265 135 115 1,515 7,535 75,185 % 3.0 2.9 5.1 2.9 2.6 2.8 5.1 3.2 2.8 3.0 3.2 3.0 3.4 3.6 3.6 3.4 3.7 3.6 N 220 530 450 175 465 250 645 410 295 450 440 405 4,735 465 305 5,505 31,790 347,515 % 10.2 14.6 15.8 8.5 11.7 10.1 15.0 13.9 12.9 13.4 11.3 11.0 12.6 12.3 9.6 12.3 15.5 16.7 N 140 280 165 110 220 180 275 170 165 260 255 170 2,390 220 195 2,805 13,675 141,790 % 6.5 7.7 5.8 5.3 5.5 7.3 6.4 5.8 7.2 7.7 6.6 4.6 6.4 5.8 6.2 6.3 6.6 6.8 N 0 15 10 0 15 10 5 10 5 5 5 10 90 0 0 90 330 4,320 % 0.0 0.4 0.4 0.0 0.4 0.4 0.1 0.3 0.2 0.1 0.1 0.3 0.2 0.0 0.0 0.2 0.2 0.2 N 25 55 65 30 75 25 65 40 30 50 55 40 555 50 40 645 3,220 32,865 % 1.2 1.5 2.3 1.5 1.9 1.0 1.5 1.4 1.3 1.5 1.4 1.1 1.5 1.3 1.3 1.4 1.6 1.6 N 120 145 120 120 210 110 255 80 115 125 145 150 1,695 220 190 2,105 9,545 85,275 % 5.6 4.0 4.2 5.8 5.3 4.5 5.9 2.7 5.0 3.7 3.7 4.1 4.5 5.8 6.0 4.7 4.6 4.1 Arts, entertainment, N 155 250 215 140 265 170 290 160 145 220 235 260 2,505 240 265 3,010 14,035 146,390 recreation and other services % 7.2 6.9 7.5 6.8 6.6 6.9 6.7 5.4 6.3 6.6 6.0 7.1 6.7 6.3 8.4 6.8 6.8 7.0 (Source: ONS, 2011) Notes: Abbreviations used are as follows: BRN - Burnley; CHR -Chorley; FYL - Fylde; HYND - Hyndburn; LANC- Lancaster; PEND- Pendle; PRES - Preston; RIB V-Ribble Valley; ROS- Rossendale; S RIB- South Ribble; W LANC- West Lancashire; BD - Blackburn with Darwen; BLKP- Blackpool % calculated as of total enterprises in the area, except for the second row of the table where %* are calculated based on the Lancashire (14 authorities). N - Number of businesses. An enterprise is roughly equivalent to a single business, company or firm. An enterprise is commonly used in other analyses is the local unit, and it is roughly equivalent to a single branch or site. Since many businesses have more than one branch or site, figures for local units are higher than those for enterprises. (Note is base on the footnote provided by ONS, 2011, UK Businesses: Activity, Size and Location) 51

Industrial partners already exist in the area. If the shale gas industry and its contractors were to establish and develop a strong foothold in the North West (or in its sub-region, Lancashire), it could find opportunities to flourish though working with (through the supply chain) or alongside (creating innovative clusters) the region's existing, vibrant businesses, including the presence in the area of large North West companies active in the energy and chemical sectors. The latter include BAE, Sellafield, Morecambe Bay (Heysham nuclear industry), and companies in the Wakefield/Cheshire area. 7.3. Regional Earnings Regional earnings, based on data from 2010, show the North West population of full-time employees receiving median gross weekly earnings of 467.1, which is 6.4 percent lower than the national level equivalent figure of 498.8. Unsurprisingly, London was the region with the highest level of earnings, surpassing the national mean by 29%, while Northern Ireland employees received earnings 12% lower than the national mean (see Table 7-10 and FIG 7-4). Table 7-10: Median Gross Weekly Earnings by Region, UK, 2010 FIG 7-4: Median Gross Weekly Earnings by Region, UK, 2010 April 2010 Full-time Men Women All United Kingdom 538.2 439.0 498.8 North East 484.8 400.0 442.3 North West 500.0 417.8 467.1 Yorkshire and the Humber 496.9 404.9 460.2 East Midlands 507.7 393.5 465.2 West Midlands 502.8 400.0 467.5 East of England 535.0 424.4 488.7 London 698.6 582.3 642.3 South East 574.9 444.1 523.7 South West 503.4 399.7 460.0 Wales 483.0 401.3 451.1 Scotland 521.5 431.2 488.2 Northern Ireland 460.0 421.2 440.8 (Source: ASHE 2010: 9) (Source: ASHE 2010: 9) The data over the last decade shows that North West median gross annual earnings have remained below the UK and the England equivalent level, and have tended to grow more slowly during the past three to four years, whilst the British economy has been suffering from recession and economic