Sector News

Drop in oil industry confidence

June 11, 2015
News
Two-thirds of North Sea oil and gas industry operators have been forced to cancel projects because of the recent fall in oil price, according to a survey.
 
Confidence was found to be at an “all-time” low in the sector and activity levels were down in line with the declining oil price.
 
An increase in decommissioning was described as “a bittersweet positive”, with more than 80% of contractors involved in that work seeing increases in their activity in the last 12 months.
 
The report published today revealed contractors’ confidence in the UK Continental Shelf (UKCS) is at its lowest point since the survey began in 2004, with only 7% saying they are more confident about their activities there than they were a year ago, compared to 76% who are less confident.
 
The percentage of firms that reported working at or above optimum levels in the UKCS has also fallen to its lowest level since the survey began.
 
The findings are contained in the 22nd Oil and Gas Survey conducted by Aberdeen and Grampian Chamber of Commerce (AGCC) in partnership with law firm Bond Dickinson.
 
It was revealed that 70% of all firms involved in exploration reported seeing its value fall in the past 12 months, with just 8% of them expecting the value of exploration to increase in the coming year.
 
One respondent warned that although measures in the March Budget were welcome, further stimulus to exploration and investment was needed.
 
James Bream, research and policy director at AGCC, 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 (Oil and Gas Authority) 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 and 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.”
 
Tax issues were cited by 81% of contractors as a constraint on their activity in the UKCS – an increase from 28% in the last survey.
 
Uisdean Vass, oil and gas partner at Bond Dickinson, said: “The UK oil and gas sector is going through a regulatory and fiscal transition at blistering pace and, with a new regulatory authority in the OGA, companies in the sector are understandably increasingly concerned about how they will be affected.”
 
He added: “Decommissioning is the bittersweet positive in the survey. Academics have been predicting an imminent spike in decommissioning for years but that spike is now well and truly upon us.
 
“Decommissioning is not driven by oil price or demand and could be very important in maintaining the value of activity in the North Sea – but the inevitable downside is that it hastens the decline of offshore exploration and production.
 
“There are other opportunities for companies in the sector. It has never been more important for contractors to focus on technology improvements and internationalisation, and in world terms there are new opportunities in unconventionals and in new jurisdictions such as Mexico, which has signed a memorandum of understanding on collaboration in the energy sector.”
 
The survey approached 700 operator, contractor and service companies in March and April. It asked about the consequence of the falling oil price on the behaviour of companies, with two-thirds of operators, and one-third of contractors, selecting the “cancel projects” option.
 
It was not asked if these projects were in the UKCS itself or in other markets.
 
The second most common consequence for operators was reduced staff training.
 
An Oil and Gas Authority (OGA) spokesperson said:“We have moved quickly to establish the OGA and welcome the ongoing strong support of industry and government as we aim to maximise economic recovery of oil and gas from the UKCS (MER UK).
 
“The £1.3 billion package of measures announced in the March 2015 Budget provided a welcome boost to the sector. It is now essential that industry redoubles its efforts to create a more competitive cost base, improve efficiency and increase productivity.
 
“To help revitalise exploration, we’re moving ahead with a £20 million Government-funded seismic project to acquire new high-quality data which will be made freely available to industry.
 
“The Energy Bill will provide new regulatory powers for the OGA, including the ability to participate in meetings with operators, have access to data, provide dispute resolution and issue sanctions such as improvement notices and fines of up to £1 million.
 
“These new powers will enable the OGA to work proactively with industry to facilitate action and encourage greater collaboration in pursuit of MER UK.
 
“The OGA will do everything we can but we don’t have all the answers. We need everyone to lead the change.”
 
Source: Energy Voice

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