Pessimism mounts over UK offshore industry

Pessimism about the UK offshore oil and gas industry is gaining momentum.

Pessimism about the UK offshore oil and gas industry is gaining momentum.

A quarterly survey by Oil & Gas UK registered a sharp decline in assessed business confidence.

And in a speech in Aberdeen, Malcolm Webb, the trade group’s chief executive, warned that a rebound in the price of crude oil by itself won’t solve the industry’s problems.

On a -50/+50 scale, Oil & Gas UK’s Business Sentiment Index in the fourth quarter of 2014 dropped for the seventh consecutive quarter and was below 0 for the second quarter in a row.

The index, which had been as high as plus 33 in the middle of 2012, fell to minus 23 in fourth-quarter 2014 from minus 7 in the third quarter.

“The majority of respondents cite the steep decline in oil price and concern about future activity levels among factors curbing optimism within the sector,” Oil & Gas UK reported.

Survey questions relate to business confidence and optimism, business activity levels, business revenues and sales, investment, operating and running costs, manpower costs and day rates, research and development spending, overall level of employment, and spending on training.

In addition to falling oil prices and related effects on budgets, many respondents mentioned “the challenging cost environment and highlight[ed] the urgent need for fiscal reform to ensure a positive future for the UK Continental Shelf (UKCS),” the group said.

Webb took that message to Aberdeen.

“The truth is our problems were already of serious concern when the price was $100[/bbl], and a simple rebound to that level will not resolve matters,” he said.

Costs on the UKCS have “rocketed up of late to unsustainable levels,” he said.

The regulatory regime, he added, “has been a problem for at least the past 15 years.” In that time, he said, the industry has weathered 35 changes in UK energy and finance ministers and a regulatory body, variously housed in three departments or bureaus, “which became seriously enfeebled and eventually not wholly fit for purpose.”

He made an exception from that judgment for the UK safety regime, which he described as “a world leader.”

But Webb repeated his group’s criticism of the UK fiscal regime, which he said has “give the UK a reputation for instability and today burdens a mature North Sea with an outdated, complex, and unpredictable regime including tax rates ranging from 60 to 81%.”

More in Economics & Markets