UK well services bright spot

UK offshore oil and gas industry optimism continues to decline amid rising operating costs and a decline in exploration activity. 

But, despite the declining optimism, sentiment in the industry still remains positive, according to Oil & Gas UK’s Q1 2014 Business Sentiment Index. 

The index, which captures a snapshot of the industry mood and measures a number of economic indicators, including business confidence, activity levels, business revenue, investment and employment, was at six points above zero on the -50 to +50 index.

“Although the first index of this year still remains within positive territory overall, the decline continues the downward trend in optimism seen over the last four quarters,” said Oil & Gas UK. 

The low levels of drilling, and cost pressures caused by; increasing operating costs, the tight labor market, and changes to the industry’s fiscal environment may have contributed towards a dampening of optimism in the industry, it says.

Oonagh Werngren, Oil & Gas UK’s operations director, said: “Whilst the mood of the industry remains positive, those in the sector recognize there are underlying problems that need addressing. Namely, rising operating costs and a current decline in exploration. We were  pleased to hear that there was been such a strong response to the latest licensing round issued by the Department of Energy - with 173 applications for 370 blocks – our focus now, must be on realizing the potential of that new acreage and drilling of more exploration wells to recover the resources our country vitally needs. If the current rate of investment is sustained, we believe that there is real hope for the long term future of this industry as the UK Continental Shelf (UKCS) has the potential to secure up to a further 24 billion boe – with our industry taking active steps to recover those resources beyond 2050.”

The Business Sentiment Index was released just days after Oil and Gas UK published its 2014 Well Services Contractors Report. 

According to the report, well services contractors operating in UK waters reported strong demand for their services. Supporting the UK offshore oil and gas industry across the full cycle of well operations, the sector reported US$3.2 billion (£2.06 billion) gross revenues, the highest level of capital investment since 2008, and provided employment for 15,000 people. 

Werngren said: “The report reveals that despite declining exploration activity, well services contractors continue to provide significant levels of investment, revenue and jobs to the UK offshore oil and gas industry. The sector has increased gross revenue by 45.5% since 2010, despite a marginal decrease in 2013, and comprises an important proportion of the £35 billion ($54.7 billion) supply chain outlined in the UK upstream oil and gas supply chain reports published by Oil & Gas UK and EY earlier this year. 

“It is clear that well services contractors are committed to addressing both the challenges and opportunities of the UKCS with total capital investment in equipment and technology to develop future capacity rising by 9.7% to $212.5 million (£136 million) in 2013. The resilience of the sector in the face of declining exploration has much to do with the breadth of services it provides across the life cycle of well operations including drilling, completion, testing and maintenance. Respondents to the survey reported strong demand for remediation, redevelopment and intervention support for existing wells.”

Employment levels have remained consistently high with more than 15,300 people employed by the sector in 2013, despite the sector citing a shortage of skilled personnel and high attrition (staff turnover). A particularly encouraging statistic is the continued increase in the recruitment of apprentices, which demonstrates the sector’s commitment to developing new employees. 

Looking ahead, factors such as high operating costs and the shortage of skilled personnel are expected to dampen optimism in the sector in 2014, although well services contractors have expressed confidence in the future. This reflects the  high levels of activity on the UKCS and the belief that the Wood Review will result in operational improvements across the basin helping to stimulate an increase in the current low level of exploration activity.