BOOM! BOOM! After ‘transformational’ oil exploration licence round, more good news as North Sea drilling activity values reach highest levels since 2014

Highlights from the 2018 Oil and Gas Survey
Highlights from the 2018 Oil and Gas Survey

The value of exploration and production activity has risen to its highest level in four years –  with firms also now equally optimistic about the North Sea and international markets for the first time since 2013, according to an industry report released today

The findings of the latest annual oil and gas survey – conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and KPMG – show that while North Sea firms have in recent years looked to international markets for business growth, business confidence is returning to the basin in terms of its potential future prosperity.

  • Overall, almost two thirds (64%) of contractors are more confident about doing business than they were a year ago with only 8% indicated being less confident.
  • This net balance of plus 56% is greater than the plus 39% recorded in the previous survey and the highest net balance recorded since spring 2013.
  • Going forward, seven in 10 contractors (71%) expect the upward momentum to continue.

The trend in the value of North Sea exploration-related work, which has been negative since spring 2014 and dipped to its lowest point in autumn 2016, is finally in the black at a net balance of plus 3%. This is expected to rise to 21% in the next 12 months.

The value of international exploration work has, on balance, also been negative since spring 2015 however in this latest survey a net balance of plus 4% of contracting firms indicated an increase, with a net balance of plus 18% expecting a further rise during the coming year.

The sharp cost cutting and efficiency measures undertaken over the past two to three years – coupled with reforms to the fiscal and regulatory environment – has led to a sector that is now more competitive, diversified and innovative.

Unit operating costs are around half of what they were back in 2014 even though production has increased.

The sector has of course been boosted by the sustained rise in the oil price – with Brent Crude now trading at close to $70-barrel, compared to below $50 just last summer.

This has helped to support some new capital investment after years of sharp cut backs.

North Sea contractors are also reporting a more positive outlook around production-related work.

For the first time since 2014 firms (a net of plus 20%) have expressed a rise in the value of production activities, with 46% forecasting a further increase in the 12 months ahead.

While 41% of contractors – the highest figure since autumn 2014 – are now working at or above optimum levels, more firms (30%) increased their investment in the region in the last 12 months than those who had reduced their spend (21%).

This is a significant shift from the position of two years ago and the trend is expected to continue in the next two years. Operators and licensees, on balance, are also forecasting a rise, suggesting the sector’s own outlook is increasingly positive.

Moray Barber, partner at KPMG, said: “It is heartening to note the rising confidence the respondents have in the UKCS with nearly three quarters of the firms forecasting an increase in business optimism in the region.

“Over the last couple of years, the survey has showed us that firms have been more focused on international markets for business growth. However, the latest set of survey results indicates that there is now a rebalancing taking place, with our region becoming just as important again in terms of securing future growth.

“Firms are telling us that whilst commodity prices remain an important factor, the extent to which they might hinder growth has lessened significantly. Perhaps this is a sign that firms now consider themselves to be suitably agile in terms of their business structures.

“The industry generally continues to be more positive. Recovery in market sentiment is steady but challenges remain in terms of skills shortages and cash flow particularly for SMEs.”

25 May 2018

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