Oil & Gas UK's Q2 2014 Business Sentiment Index has revealed that industry optimism has fallen for the fifth consecutive quarter, but remains positive, just, at two points above zero on the -50 to +50 index.
The industry body described the results as a "trend our industry cannot afford to ignore."
The quartley index captures a snapshot of the North Sea upstream industry's mood and gauges a number of economic indicators, including business confidence, activity levels, business revenue, investment and employment with a higher rating (above zero) indicating a more positive outlook and a lower rating (below zero) expressing a more negative opinion.
Ken Cruickshank, Oil & Gas UK’s operations manager, said: “This latest snapshot shows optimism in our industry has dropped by four points – from six points above zero last quarter, to two points today. Unfortunately we have seen the index fall over the last five quarters and, while businesses remain in optimistic territory overall, this is not a trend our industry can afford to ignore.
"Incentives are required to encourage further investment in the basin to turn around low levels of drilling as the reduction in activity levels is adversely affecting the outlook of contractor, service and companies in the wider supply chain.”
Cruickshank added: “While capital expenditure last year was at all-time high, our costs continue to rise and production rates continue to fall, especially in some of the oldest fields which are taxed at rates of up to 81%, and exploration is at an all-time low.
“We are clear that fundamental change is needed to change the way the industry is taxed and regulated, if the UK is to maximise economic recovery from the UK Continental Shelf (UKCS). As the leading representative trade association representing some 460 companies throughout the UK, we hope that the implementation of the Wood Review – in particular the creation of the Oil and Gas Authority and the establishment of a simpler, more competitive fiscal regime with a lighter tax burden through the HM Treasury’s consultation, will be the catalysts which turn this situation around.”
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