North Sea oil and gas industry in confidence crisis

Contractor’s confidence in the North Sea oil and gas industry is at a ‘record low’, according to a new survey.

Oil platform on the North Sea while cloudy dayThe survey, conducted by Aberdeen & Grampian Chamber of Commerce and Bond Dickinson, reveals that two-thirds (67%) of industry operators have been forced to cancel scheduled projects because of the dip in oil prices. While only 21% believed that they were operating at or above their optimum.

Some contractors found minor cause for celebration in the news that decommissioning work was on the increase, but operations which close down operations on the UK Continental Shelf (UKCS) are ultimately detrimental to the industry’s cause.

Uisdean Vass, oil and gas partner at Bond Dickinson, said: ‘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.

In stark contrast, only eight percent of firms involved in exploration activities reported that they expected the value of their work to increase in the coming year.

A number of explanations were offered for the downbeat attitude. Clearly the falling price of oil has had a large effect on North Sea operations but many (81% of) contractors cited tax issues as a serious constraint on their activity. A large number of respondents reported ‘complex regulations’, ‘cost of capital’ and ‘access to capital’ as inhibiting factors.

Effect on the UK gas market

Currently, there is not much concern for UK gas buyers who will continue to enjoy the low gas prices associated with oil prices.

The lack of a viable gas source on Britain’s doorstep could prove problematic in the long-term, but on the whole the industry is confident that there are suitable opportunities for expansion and increased efficiencies.

James Bream, Research and Policy Director at Aberdeen & Grampian Chamber of Commerce, 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 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 & 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.”

For more in-depth gas market analysis talk to one of our industry experts. Call 0800 157 7175.