North Sea Oil and Gas Industry Turning a Corner Reckons Bank

Graphic for News Item: North Sea Oil and Gas Industry Turning a Corner Reckons Bank

CONFIDENCE has increased among North Sea oil and gas firms from a low base but around one in five still expects to cut jobs this year research has found.

The results of the latest Oil and Gas Survey by Bank of Scotland provide further evidence that hope is returning to the North Sea as the industry enters the fourth year of the downturn triggered by the crude price plunge.

They suggest firms could be prepared to increase spending in the area following years of budget cuts, which have put intense pressure on the supply chain and resulted in thousands of jobs losses.

Bank of Scotland reckons the oil and gas industry is proving itself to be among the most resilient in the UK.

“The expression of confidence in this year’s survey reflects an industry that appears to be turning a corner, with conditions for growth more favourable than they have been in recent times,” said Stuart White, regional director in the bank’s North of Scotland operation.

However, Mr White highlighted the continuing pressure on sector players, with political uncertainty at home and abroad compounding the challenges posed by low oil and gas prices.

With the Bank of Scotland survey covering firms that operate fields as well as those that provide services, the findings will be studied closely amid hopes the worst of the downturn may be over in the North Sea.

The findings indicate there has been a marked increase in confidence over the past year, during which moves by Opec exporting countries to limit production helped put a floor under the crude price.

The rise in the price, from a 12 year low of $27 per barrel early in 2016 to around $46,/bbl has boosted sentiment.

A net balance of 39 per cent of respondents were optimistic rather than pessimistic, against two per cent last year.

With 58 per cent predicting they will achieve growth this year, against 49 per cent last time, many firms appear to be moving on to the front foot after years in which retrenchment was the order of the day.

Most respondents think they have done enough to cope with low oil prices.

While crude is selling for well under half the $115 per barrel recorded in June 2014, the price rise since last year appears to have encouraged firms to look again at the North Sea.

Some 91 per cent of respondents expect to maintain or increase their exposure to the UK Continental Shelf in the coming year, up from 84 per cent in the previous survey.

Seventeen per cent of large firms said they intended to expand in the area compared with zero per cent last time. Fifteen per cent of all respondents expect to expand in the North Sea.

Bank of Scotland noted the finds made by Hurricane Energy off Shetland have generated excitement.

Seventy per cent of firms said the business climate had presented opportunities overseas.

But the findings suggest many firms continue to find the going tough.

While fifty five per cent expect to increase head count this year, 19 per cent think they will cut jobs.

As the increasing cost of production was cited as the biggest challenge by 48 per cent of respondents, the supply chain may face further pressure. Thirty five per cent of respondents expect profit margins to shrink this year.

The fall in the value of the pound and uncertainty caused by Brexit negotiations were cited as challenges by 44 and 35 per cent of respondents respectively.

The latest oil and gas sector sector survey by Aberdeen and Grampian Chamber of Commerce, published last week, signalled a marked increase in confidence among services firms from the historic lows seen in the last 18 months.

However the chamber cautioned that forecasts of a general recovery may be premature.

Source: www.heraldscotland.com

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