Innovation, ingenuity and perseverance must take centre stage in the current oil and gas environment,
That was the key message at a seminar held in Aberdeen recently, hosted by the Royal Bank and business advisory firm, Johnston Carmichael, where 80 key industry delegates listened to Royal Bank chief economist, Stephen Boyle, discuss how the oil and gas industry has been affected post-Budget and post-election.
He said: “This is not the first time the UK North Sea has experienced a major downturn, and certainly will not be the last. With this in mind, it is important to remember that we can manage, and live through these episodes by retaining focus on innovation, ingenuity and perseverance.”
Boyle noted that oil and gas industry expenditure for 2014 was £26.5 billion, with the Office for Budget Responsibility highlighting in its March 2015 Economic and Fiscal Outlook that post-2015 Budget, the average annual spend between 2015 and 2019 will be £18.2 billion, marking a 31% drop in expenditure.
He commented: “Oil and gas is going through a significant structural change, and addressing this requires a strategic structural response. Service companies have already been receiving requests to cut costs for many months now, so that operators can in turn reduce their bottom line.
“This is a short term measure however, and in order to implement a sustainable, long-term response, the industry must look at smarter ways to meet clients’ needs. Doubling down on innovation and productivity are becoming of greater importance than ever before.
“In Aberdeen and the North Sea, it is difficult to see any positive from the oil price slump.
For the rest of the UK however, it has meant reduced fuel prices and good news for consumers, and added around 0.5% to UK economic growth. How that growth continues will depend on how quickly the oil price recovers, however, and a rapid turnaround could mean that GDP growth is not as strong.”
Niall Farquharson, joint managing partner at Johnston Carmichael’s Aberdeen office, re-iterated that innovation and research and development into new technologies are key factors in the long term sustainability of the oil and gas industry.
He said: “Aberdeen is well established as a centre of excellence for innovation, and the city, in recent years, has been second only to Cambridge in terms of the number of patent applications submitted.
“In addition to the recently announced changes to the UK oil and gas rexi regime, a number of announcements were also made as part of the 2015 Budget to improve access to R&D tax credits for small and medium sized businesses.
“This will work alongside previously announced increases to R&D tax relief. These are very welcome measures which come at an extremely appropriate time, as the oil and gas industry goes through a radical shift.”