Scots firms harder hit than UK-supply chain as 40% of N. Sea oil firms plan tsunami of further job cuts

NOT GOING UP: employment prospects in the North Sea
NOT GOING UP: employment prospects in the North Sea

More than 4 in 10 N. Sea oil and gas firms are planning a tsunami of job cuts as the sector is swamped by the economic after-shock of the global slump in crude prices, which fell from more than $100-barrel in June 2004 to around $30-barrel in December 2015.

In addition, the annual Bank of Scotland report, ‘Re-evaluating Strategies’, found that 32% of businesses plan to cut more jobs this year as the oil price takes longer to recover than expected.

In particular, Scottish firms have been badly hit by the slump in oil prices, with almost six in 10 (57%) recording that their business has been severely or quite badly affected compared to a UK-wide average of 41%.

Of the 141 companies questioned, 58% have had to introduce efficiency measures or cut costs over the last 12 months. Firms in Scotland felt the brunt of the losses most severely with 63% businesses reducing their workforce.

Even though crude oi prices have almost double in the past six months to around $50-barrel, looking to the next 12 months, 48% expect to take efficiency measures to reduce operating costs and improve profitability,

The five most popular strategies being implemented in order to meet the cost challenges in the North Sea are:

  • Making day-to-day operational efficiencies (67%)
  • Rationalising supply chains (66%)
  • Adopting new technology (63%)
  • Adopting new processes (60%) and
  • New product development (55%).

A third of operators (33%) said exploration and development activity will remain subdued until oil prices recover.

The report places the price of oil in a broad historical context concluding that the years of $100+ per barrel were a half-decade price bubble in a much longer run of prices, which, in real terms, ranged between $30-40 per barrel for almost two decades in what was a period of growth. 

Higher costs and the much greater maturity of the North Sea means profits are much harder to realise now, but much of the industry thinks they are still attainable.

And large, global operators (57%) see decommissioning as a major diversification opportunity. This sentiment may be driven by the anticipated £17 billion clean-up of redundant infrastructure over the next decade.

oil 50 barrelStuart White, Area Director, Commercial Banking, Bank of Scotland, said: “The decline in the price of oil has made headlines around the world, and its knock-on impact on investment and employment has created economic headwinds that are being felt, not just by the industry but across the wider economy.

“With oil prices currently hovering around the $50-barrel level,there is hope that prices have bottomed out and have begun to slowly and modestly recover. Many businesses however, undoubtedly face more difficult decisions on cost savings, jobs and investment.”

“While the blow from depressed oil prices has been severe for many businesses and individuals impacted by job losses, the sector is proving itself to be among one of the most resilient industries in the UK.

“There are still choppy waters to navigate, but we remain committed to supporting our clients within the sector.”

Meanwhile, Murdo Fraser, MSP – former convenor of the Energy Committee in the last Scottish Parliament and now Tory finance spokesman –  said it was “ridiculous that the Scottish government is seeking to ban shale extraction at a time that the energy industry is looking to diversify.”

He added: “The SNP has to wake up to this, ignore Labour and the Greens’ manufactured outrage over fracking, and get on with it. Not only could it provide a jobs boost, but it could help energy supplies and reduce bills too.”

 

Industry annual conference to focus on collaboration and efficiency

The strengths, weaknesses, opportunities and threats facing the North Sea industry will be top of the agenda at the annual Oil and Gas UK conference in Aberdeen next week.

The management of North Sea infrastructure, the decisions needed over the next five years to keep operations stable, the opportunities still available and the future decommissioning market will be addressed in his opening speech by Stephen Halliday, Group President of Wood Mackenzie.

He said: “The UK faces the dual challenges of the low oil price and declining investment. Progress has been made in making the sector more attractive, particularly with lower tax and a new regulator.

“However, action needs to be taken to ensure that we optimise investment returns and make use of existing infrastructure. Costs have been coming down – but the industry needs to see more collaboration, standardisation and exploration in order to maximise the value of the UK North Sea.”

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