AGCC survey finds crisis of confidence for North Sea oil and gas industry

11/27/2015

ABERDEEN, Scotland -- The confidence of North Sea oil and gas contractors is at an all-time low, according to a new industry report released by Aberdeen & Grampian Chamber of Commerce (AGCC) on Thursday.

Four in five contractors (79%) surveyed say they are less confident in their prospects than a year ago, compared to just one percent that are more confident.

The findings, from the 23rd Oil and Gas Survey, conducted by AGCC 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.

Just 16% of contractors report working at or above optimum levels, down from 21% in the previous survey.

Confidence has not been helped by a high level of recent redundancies in the industry. Some 64% of firms have reduced their workforce in 2015 compared to just 14% who increased numbers.

Response to the wave of redundancies across the sector is mixed.

While over half of firms (54%) agree that redundancies were a strategic response to make the industry fit for the future, a similar percentage (58%) also believe the level of redundancies was excessive, and risks losing key skills and competitive advantage.

Indeed, the most common destination of qualified staff leaving contracting companies is to leave the industry altogether (31%), followed by retirement (29%).

Worryingly, 85% of respondents think the job losses will continue over the next year.

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.”

“Unusual” issues

North Sea firms responding to the survey report a range of unusual challenges that are currently posing them problems.

Four in five firms (80%) says they are seeing an abnormal increase in the number of projects being cancelled.

Seventy-six percent 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.

Seventy-eight percent of all firms questioned expect to be more involved in decommissioning work in the next three to five years; two-thirds (67%) of firms expect greater involvement in unconventional oil & gas activities; and nearly half (46%) expect greater involvement in renewables work.

Firms report that the attributes most in demand over the coming three years would be decommissioning experience, followed by international experience and project management skills.

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/bbl 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’. Firms identified decommissioning experience as the number one skill required over the next three years which is a bitter-sweet positive. An increase in decommissioning activity will inevitably herald a decline in offshore exploration and production so in a certain sense the industry will feed on the body of infrastructure which supports it."

Other key findings from the survey include:

Activity levels overseas: 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.

Role of the OGA unclear: Forty seven percent of respondents don’t feel the role of the Oil & Gas Authority (OGA) has been explained well enough to them, a lack of clarity felt particularly amongst contractors. Twenty two percent of firms are not confident that the OGA has the powers it requires to protect the future of the UKCS and 62% are uncertain.

Training high on the agenda: Training of existing staff is the most likely route to acquire the skills needed over the coming years, cited by 58% of respondents, followed by increasing their use of contractors (37%); recruiting from other UKCS firms (27%); and recruiting from other industries (22%).

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