Oil and gas confidence rises from historic lows: N. Sea operators anticipate £50bn decommissioning bonanza, and half plan to move into renewables by 2020

Aberdeen Chamber of Commerce oil and gas survey Jun 2017
Aberdeen Chamber of Commerce oil and gas survey Jun 2017

There has been a notable rise in confidence among N. Sea oil and gas operators from historic lows last year, with 42% of firms now expect to be growing by January 2018.

But more than half (53%) of oil and gas firms expect to be operating in the renewable energy sector (principally offshore wind) in by 2020, and:

Four in five firms (80%) expect to be working in the end-of-life and N. Sea decommissioning phase by 2020 – which will be a one-off bonanza as the basin dries up.

According to the new survey by Grampian chamber of commerce, more than half of those surveyed believe the industry has already ‘reached the bottom’.

The findings of the 26th Oil and Gas survey, conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute, also reveal that 38% of contractors surveyed are more confident about business in the North Sea compared to just 10% who are less confident.

This is a notable rise from historic lows six months ago when only 12% of contractors were more confident and 47% were less confident. However 52% report no change in their outlook, indicating that significant challenges still remain in the marketplace. It is too early to say a recovery is being universally felt.

More than half (52%) of contractors and operators / licensees believe that the sector has already reached the bottom of the current cycle and 26% consider it will do within the next year. When asked what position businesses expect to be in by January 1, 2018, 42% expect their business to be growing, up from 16% who expected to be growing by January 1, 2017, while only 2% anticipate further decline.

Contractors’ investment spend is moving in a positive direction with more contractors anticipating to increase investment over the next two years (26%) rather than reduce (19%).

The following quotes were provided non-attributably to the survey:

  • “Industry will stagnate until we have a stable oil price over $70 for at least 12 months.”
  • “Continued budgetary restrictions on exploration for the foreseeable future. Industry will never return to the $110-barrel level.
  • “Companies will have to continually reduce operating costs going forward. More jobs will be lost in UKCS.”
  • “Lack of actual collaboration by operators in a sea of positive aspirations.”
  • “The future depends on people collaborating. Aberdeen and Aberdeenshire and Scotland is overly dependent on vested interests and a lack of will power from the OGA to enforce regulations.
  • “Industry will stagnate until we have a stable oil price over $70 for at least 12 months.”

Kirsty Blackman, the SNP MP for Aberdeen North, commented: “The news that there is growing confidence in the North Sea oil and gas industry is to be welcomed – and proves the continued resilience of the sector despite the recent downturn.
“This return of confidence can only be positive for the North East, stimulating our local economy and bringing back well-paid and highly skilled jobs.
“Yesterday, I wrote to the Prime Minister demanding that she includes stronger action in the Queen’s Speech to support the oil and gas sector and the North East economy – and the latest figures from the Aberdeen Chambers of Commerce prove that additional support can make a real difference.”

However, increases are limited to certain areas and again cannot be seen consistently across all parts of the industry.

A spokesman for the Chamber explained: “We’re seeing some signs of recovery for the industry and the global outlook is certainly more positive than it was six months ago, but it is clear that most companies are still suffering.

“We are hopefully stepping into a more prosperous period in due course but that is not upon us for now. It seems clear that many believe that we won’t return to previous levels of activity and that perhaps we shouldn’t call this a downturn. This isn’t a ‘new norm’, it is just normal.”

The survey found that excess capacity remains with 24% percent of contractors reporting working at, or above, optimum levels in the UKCS and 43% are working at or above their optimum levels overseas, up from record lows of 12% and 24% respectively six months ago.

While more contractors have reported working at or above optimum levels, there are still signs of more labour market challenges with operators and licensees reporting a 2.5% decline in their FTE workforce, and a 6% decline for contractors, in the 12 months to March 2017. Although operators and licensees continue to anticipate a decline over the next 12 months at a rate of 2%, contractors expect to increase their workforce by 0.8%.

Sixty-nine percent expect to be involved in unconventional oil and gas activity in the UK in the medium term, with 65% expecting to be involved outside the UK.

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