Three in four North Sea oil and gas contractors are less confident about their prospects than they were a year ago, according to a new industry report released today.
Seventy-five per cent of contractors surveyed said they were less confident in their prospects on the UK Continental Shelf (UKCS) compared to just 7% that are more confident.
The findings, from the 24th Oil and Gas Survey, conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and sponsored by law firm Bond Dickinson, also reveal a bleak employment situation in the sector. Oil and gas operators say they have seen a 15% reduction in their UK-based headcount over the past 12 months, and expect a further reduction of 17% over the coming year.
While 42% of firms in the sector cite increasing efficiency / productivity as their main priority, one in four (23%) cites cutting costs as their number one priority.
Just 14% of contractors report that they are working at or above optimum levels in the UKCS, a huge decline since the 79% reported just three years ago. Global pressures appear to be taking their toll on overseas operations as well, with only one in four firms (27%) working at or above optimum levels overseas – an historic low.
Russell Borthwick, chief executive at Aberdeen & Grampian Chamber of Commerce said: “Respondents have reported falls in activity, but a slightly higher number are working at capacity internationally. Looking a year ahead, there is perhaps a shard of light as confidence looks relatively higher for international markets.
“In the previous two surveys we carried out, we found confidence had hit record lows, with an all-time low in November 2015. This time, while the figure is still firmly in negative territory, it has marginally improved, which may perhaps show we are near the bottom of the curve.”
Eighty-five per cent of contractors expect to increase their involvement in decommissioning work over the next three to five years, up from 79% in the previous survey and the highest figure since this question was first asked in 2010.
Uisdean Vass, oil and gas partner at Bond Dickinson, commented: "Sometimes you have to look behind the statistics to see the true picture and that is the case with decommissioning. Although decommissioning will offer great opportunities it is like the funeral industry – we want to put it off for as long as possible.
“The uncertainty which all those in the industry face at the moment regarding their livelihoods continues and any slowdown in the shedding of jobs does not appear to be materializing.”
Level of demand (94%), commodity price (95%) and economic climate (95%) are seen as the most important factors constraining contractors’ UKCS activity, followed by complex regulations (68%), taxation issues (70%) and costs of capital (71%). Skills shortages were seen as a limiting issue by 50% of contractors, and the loss of staff to other companies by 43%.
These constraints have contributed to a decline in investment expenditure. In the past 12 months, 44% of contractors have reduced their overall investment against just 11% who have increased it. This trend is expected to continue, with 42% of contractors expecting to reduce their investment over the next two years, compared to just 12% who expect to increase it.
Nearly half of respondents (45%) said it is difficult to reach a clear view about whether a vote in favor of exiting the European Union would be a positive development for the oil and gas sector or not, and a further one in five (20%) said it would make little difference to the sector. Of those who expressed a firm opinion, the feeling was that remaining in the EU would be the best outcome, with 27% of respondents saying a Brexit would be unhelpful, compared to 8% who believed it would be a positive development.
Uisdean Vass added: “One thing about which the majority of the industry is united is the impact of the European referendum. Most are 'unfazed' at the outcome so, just as with the Scottish independence referendum, operators and contractors have shown they believe constitutional matters have little impact on their businesses.”
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