Two-thirds of North Sea oil and gas industry operators (67%) have been forced to cancel projects because of the recent fall in oil price, according to an industry report published this week. The findings, from the 22nd Oil and Gas Survey, conducted by Aberdeen & Grampian Chamber of Commerce in partnership with law firm Bond Dickinson, reveal that half of operators (50%) have been forced to reduce staff training for the same reason.
Oil price factor
The fall in oil price has been a contributory factor to a fall in confidence and activity levels in the sector. Contractors’ confidence in the UK Continental Shelf (UKCS) is at its lowest point since the survey began in 2004. Only 7% of contractors are more confident about their UKCS activities than they were a year ago, compared to 76% who are less confident.
The percentage of firms that report working at or above optimum levels in the UKCS has also fallen to its lowest level since the survey began in 2004. Just one in five contractors (21%) is working at or above optimum levels, down from 47% in the previous survey and just over half (52%) report working at or above optimum levels in overseas markets, down from 72%.
Exploration sector taking a hit
Exploration has been a big casualty of the challenges facing the oil and gas industry, with 70% of all firms involved in exploration having seen the value of it fall in the past 12 months, and just 8% of them expecting the value of exploration to increase in the coming year.
One respondent cautioned that although measures in the March 2015 Budget were welcome, further stimulus to exploration and investment is required: “Allowances on producing fields were welcome, but more was needed to increase exploration drilling, without which there will be no new projects and decommissioning will accelerate, thus removing infrastructure and opportunity for good.”
Increase in decommissioning activity
James Bream, Research and Policy Director at Aberdeen & Grampian Chamber of Commerce, said: “Once again we have a set of results that give us clear signals that new opportunities exist and tells us that actually – contrary to what people say – we haven’t been here before.
“Confidence levels are at an all-time low and we are now experiencing our first ‘recession of confidence’, and it looks gloomy in the year ahead too. However, we have seen positive tax changes, the OGA team is bedding in and in the Queen’s Speech the new UK Government has committed to legislating for the Infrastructure Bill.
“There is lots to build on and just perhaps it is possible that we are seeing the start of the next phase in our role at the frontier of the oil & gas sector. Can we grasp the opportunity to lead the way in decommissioning practices and become a new high efficiency basin as we mature faster than others? This is a mid-life crisis in the UKCS but as some people say life begins at 50.”
One area showing increases in activity is decommissioning. Over 80% of contractors involved in decommissioning have seen increases in their activity in the last 12 months, and only one in four of these contractors (24%) expect the value of it to decrease in the next 12 months.
Other key findings
Tax and regulation causing issues for contractors: Tax issues were cited by 81% of contractors as a constraint on their activity in the UKCS, a huge increase from 28% in the last survey. There were also increases in the number of respondents reporting “complex regulations”, “cost of capital” and “access to capital” as constraints on their UKCS operations. Complex regulations are now an important issue for 74% of contractors, significantly up from between 20 and 40% in previous surveys.
Investment intentions for staff training: Half of all firms (46%) are maintaining levels of expenditure on staff training over the next 12 months. However, more contractors (28%) are expecting to reduce spend in this area than increase it (23%). The pattern is even bleaker with operators, with a majority of them (60%) anticipating a reduction in expenditure on staff training in the next 12 months.
Adapted from press release by Cecilia Rehn