North Sea survey shows offshore contractors regaining optimism

Aug. 13, 2018
Offshore contractors and service companies near Aberdeen report renewed optimism about exploration and production activity across the North Sea, said results of the 28th Oil and Gas survey by the Aberdeen and Grampian Chamber of Commerce (AGCC).

Offshore contractors and service companies near Aberdeen report renewed optimism about exploration and production activity across the North Sea, said results of the 28th Oil and Gas survey by the Aberdeen and Grampian Chamber of Commerce (AGCC).

The Fraser of Allander Institute, a research unit of the University of Strathclyde in Glasglow, analyzed the data for the survey done every 6 months. KPMG LLP was a partner with AGCC on producing the report. For the latest survey, 91 contractors responded.

The survey seeks to analyze short- and medium-term trends in exploration and production, decommissioning, and other activities.

Pollsters ask respondents to indicate whether they consider a specific trend to be up, level, or down. The net balance is the number of up responses minus the number of down responses.

The value of UK Continental Shelf exploration-related work trended positive after having been negative since 2014 and dipping to its lowest point in 2016. Contractors gave current UKCS exploration-related work a net balance of +3%, adding they expect that will rise to 21% within a year.

The latest survey also showed 64% of contractors polled are more confident about doing business than they were a year ago. Eight percent said they had decreased confidence from the year before. The latest survey’s net balance of +56% is the largest since spring 2013.

Seven in 10 contractors expect to see accelerating momentum in business optimism surrounding the UKCS in coming months, said the survey, which examined work done October 2017-March 2018.

Russell Borthwick, AGCC chief executive, called upon operators, contractors, and suppliers to work together. “It does appear that a corner has been turned, but we must avoid complacency,” Borthwick said. “A steady recovery, not a return to boom and bust, is what is required.”

Moray Barber, a KPMG partner, said industry remains under stress although companies are reporting a tangible difference compared with 2 years ago.

“The tone of conversations we have with clients is that they can see light at the end of the tunnel,” Barber said. “A couple of years ago, it was a dark place.”

Trends turning positive

Fig. 1a shows increasing value of firms’ UKCS contracts for production, decommissioning, and exploration activities. Fig. 1b shows their forecasts for value of work during the next 12 months.

Previous survey results showed a negative trend in the value of UKCS production-related work (a net balance of -4%) with more firms reporting reduced values than reporting an increase.

But a net balance of more than 20% of contracting firms expect increasing UKCS production–related contract values. It’s the first time since the second half 2014 that this trend has been positive.

A net balance of plus 46% of respondents forecast additional UKCS production work during the coming year. When asked about the value of production work elsewhere, 35% of the contractors reported a rise while 8% reported a reduction.

UKCS decommissioning activities also appear to be picking up. Nearly one-third of firms surveyed expect higher values of UKCS decommissioning work during the coming year. About 25% of contractors surveyed also expect more international decommissioning work during the coming year.

Fig. 2 shows contractors’ expectations of involvement in decommissioning activity over the medium term. In the previous survey, 83% reported that they were “definitely” or “possibly” to be more involved in decommissioning. That number eased to 78% in the latest survey with the following findings:

• 30% (37% in the previous survey) said they definitely will become more involved in decommissioning.

• 48% (46% in the previous survey) said they might become more involved in decommissioning.

The November-April 2016 survey showed the highest level of contractors reporting that they would definitely or likely become more involved in renewables (63%), but this declined to 56% in the latest survey.

When asked about prospects for UKCS unconventional oil and gas, 60% of those surveyed expect to be either definitely or possibly involved. With respect to unconventional activities outside the UK, 24% of contracting firms expect that their company will definitely be more involved during the next 3-5 years with another 33% expecting possible involvement.

Investments likely growing

Survey results show 30% of contractors increased UKCS investment UKCS during the last 12 months compared with 21% who reduced spending. Another 35% of contractors reported no change in their investment spending.

The net balance of +9% compared with a -22% a year ago and with -32% reported 2 years ago.

The outlook for the next 2 years is positive with 51% of contractors saying they expect to increase investment, 8% plan a reduction, and 26% anticipate no change in their investment spending.

Operators and licensees also are forecasting a rise, suggesting the entire offshore industry’s outlook is becoming more positive, the survey report said.

Fig. 3 shows the net balance between those contractors reporting an upward trend and those reporting a downward trend in each category of investment spending. The net balances for investment activity was positive in all categories, unlike the previous survey, which showed negative trends in three categories.

Contractors reported increasing investments on staff training compared with a year ago when staff training investment declined. Operators and licensees also expect increased investment for training.

Regarding employment, contractors reported a 1.3% weighted average reduction in the number of UK-based workers in the 12 months to October 2016. Contractors reported a 0.2% increase in headcount during the 12 months to March 2018, implying that the recent trend in job reduction has halted.

During the coming 12 months, contractors anticipate increasing headcount by an average of 3.9%, the AGCC said.

Operators reported a 6.2% reduction in their UK-based headcount in the 12 months to October 2017. In the next 12 months, operators anticipate the downward trend to continue with a 4.2% reduction in headcount.

Oil & Gas UK in its Economic Report 2017 estimated the number of jobs supported by the oil and gas industry declined from 315,000 in 2016 to about 301,000 in 2017. Of the 2017 total, oil and gas companies and major contractors directly employed 28,000, with at least 141,000 employed in the wider supply chain and another 132,000 in industry-related jobs.

AGCC said its autumn 2018 survey will feature a section on recruitment, retention, and skill shortages.

Acknowledgement

This article was adapted from the Aberdeen & Grampian Chamber of Commerce Oil and Gas May 2018 Survey.