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North Sea oil and gas industry faces crisis of confidence

03 December 2015

The number of contractors employed in Britain's oil and gas sector has fallen over the past year at the steepest rate since at least 2004, a survey carried out by a Scottish business association showed on November 26. The Aberdeen and Grampian Chamber of Commerce estimated overall employment in the oil and gas sector to have fallen by 6% in the year to September 2015.

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Some 62% of companies providing services to the sector said they had cut staff over the period and 79% said they were less confident in their prospects than a year ago, compared to just 1%that are more confident. 85% of respondents think the job losses will continue over the next year.

The findings, from the 23rd 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 the lowest level of firms working at or above optimum levels in the UK Continental Shelf (UKCS) since the survey began in 2004.

Britain's oil and gas sector has lost over 5,000 jobs since late 2014 as a slump in oil prices has severely squeezed oil companies' budgets and led to project cancellations.

North Sea companies responding to the survey reported a range of unusual challenges that are currently posing them problems, with 80% seeing an abnormal increase in the number of projects being cancelled. 76% are seeing an unusual increase in the time taken to make procurement decisions, and 45% have noticed a particular spike in late payments.

In the face of this challenging economic environment, North Sea businesses are giving serious consideration to alternative revenue streams. This includes 78% expecting to be more involved in decommissioning work in the next three to five years; 67% expecting greater involvement in unconventional oil and gas activities; and 46% expecting greater involvement in renewables work.

Other key findings from the survey include:

*The activity picture is slightly healthier in overseas markets, with 36% of contractors reporting working at or above optimum levels, though this is still a significant decrease from 52% in the previous survey.

*A total of 47% of respondents did not feel the role of the Oil & Gas Authority (OGA) had been explained well enough to them, a lack of clarity felt particularly amongst contractors, while 22% of companies are not confident that the OGA has the powers it requires to protect the future of the UKCS and 62% are uncertain.

*Some 58% of respondents  said training of existing staff was the most likely route to acquire the skills needed over the coming years, 37% said they would increase their use of contractors, 27% will recruit from other UKCS firms and 22% from other industries.

James Bream, research and policy director at Aberdeen & Grampian Chamber of Commerce said: “The low confidence levels being reported come as no surprise and the outlook suggests there will be more pain ahead for the sector.

“However, if we are not complacent, a long-term future still exists for the sector and players such as the Oil & Gas Authority will have a major role alongside the industry itself.

“The fact is that the UKCS is a frontier basin and always has been. This provides a unique set of opportunities which can continue to allow our supply chain to be active around the globe, but this success is not guaranteed.”

Uisdean Vass, oil and gas partner at Bond Dickinson, said: "This is probably the most negative survey we have ever had and while there is little to be positive about in the short term, there are some glimmers of hope.

"Over the next three years 28% of contractors expect their numbers of core staff to increase. Neither contractors nor operators see the North Sea disappearing.

“They believe the industry can survive at $50 a barrel and that there will be a price upswing over the next three years with more room for oil company profitability because of enhanced efficiency. Contractors will also benefit from enhanced efficiency.

“As the old saying goes, 'What doesn't kill you makes you stronger’.”


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