North Sea confidence reviving in Aberdeen area

Offshore suppliers and service companies in the Aberdeen area are more optimistic about E&P activity across the UK North Sea, according to a report by Aberdeen & Grampian Chamber of Commerce.

Offshore staff

ABERDEEN, UK – Offshore suppliers and service companies in the Aberdeen area are more optimistic about E&P activity across the UK North Sea, according to the 28th Oil and Gas survey conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and KPMG.

About two-thirds (64%) of contractors canvassed were more confident about doing business than they were a year ago with only 8% indicating decreasing confidence.

Seven in 10 contractors (71%) expect the recent upward momentum to continue.

The value ofUK continental shelf (UKCS) exploration-related work had been ‘negative’ since spring 2014, the survey found, but was finally back in the black, at a net balance of plus 3%. This is expected to rise to 21% in the next 12 months.

As for the value of international exploration work to local companies, this too had been negative since spring 2015 but a net balance of plus 4% of contracting firms have now indicated an increase, with a net balance of plus 18% expecting a further rise during the coming year.

Contractors are also more positive about UK offshore production-related work, with a net of plus 20% seeing a rise in the value of production activities, and 46% forecasting a further increase over the 12 months ahead.

In addition, 41% of contractors – the highest figure since fall 2014 – are presently working at or above optimum levels on the UKCS, with more firms (30%) increasing their investment in the region over the past 12 months than those that had reduced their spend (21%).

Operators and licensees, on balance, are also forecasting a rise, the survey found, suggesting the sector’s overall outlook is increasingly positive.

The survey looked at work in the six months to March 2018, asking firms about their prospects in the year ahead as well as the next three to five years to assess trends in exploration and production, decommissioning and other related oil and gas extraction activities both in the UK and international markets.

Moray Barber, partner at KPMG, said: “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.

“The survey shows that lengthy payment terms continue to be a problem for SMEs. Against a backdrop of the UK’s new Payment Practices and Performance Reporting regulations and Oil & Gas UK’s Supply Chain Code of Practice, we need to see improvements in this area if the sector as a whole is to flourish.”

The sector also continued to see a slowdown in the rate of job reduction. While operators are, in the main, forecasting a reduced slowdown in job reduction, contractors in the supply chain reported a marginal increase (0.2%) in headcount, indicating the recent trend in net job reduction has halted. The survey also showed 70% of firms are forecasting an increase in profits in 2018.

Russell Borthwick, chief executive of Aberdeen & Grampian Chamber of Commerce, added: “It does appear that a corner has been turned but we must avoid complacency. The future strength of the sector depends on operators, contractors, and suppliers continuing to work together in the new way as the climate continues to improve.

“A steady recovery, not a return to boom and bust is what is required. What is clear is that oil and gas will remain a key contributor to the Scottish and UK economies for many years to come.”

05/25/2018

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