Three in four North Sea oil and gas contractors are less confident about their prospects on the UK Continental Shelf than they were a year ago, according to a new industry report released Thursday by the Aberdeen & Grampian Chamber of Commerce.
Surveyed oil and gas contractors are also pessimistic about employment in the future, with 30 percent expecting more staff cuts within the next 12 months. Almost two thirds of contractors reduced their employment numbers over the last year.
The commodity price was listed as the most important factor constraining contractors’ UKCS activity, with 95 percent of participants blaming the crash in Brent crude. The economic climate, complex regulations and taxation issues also ranked highly among those surveyed as limiting factors, as did skills shortages and the loss of staff to other companies.
Over the past 12 months, 44 percent of contractors have reduced their overall investment against just 11 percent who have increased it. This trend is likely to continue, with 42 percent of contractors expecting to reduce their investment over the next two years, compared to just 12 percent who expect to increase it.
As part of the survey, firms were also asked what the headline rate of tax on UKCS oil companies should be in 2016. While 16 percent of companies did not answer this question, the majority of firms felt that the headline rate of tax should be reduced from its current level. When asked what other measures could be used by the UK Government to encourage exploration, responses typically included policies on the use of the tax and allowances system, reducing firms’ risk on exploration activities through funding such activities directly, or taking a share in such activities.
In March this year, UK Chancellor of the Exchequer George Osborne announced significant tax cuts for the UK oil and gas industry, which received mixed responses with some claiming they were not sufficient.
North Sea Oil, Gas Industry “Unfazed” By Brexit
Nearly half of respondents (45 percent) said it was difficult to reach a clear view about whether a vote in favour of exiting the European Union would be a positive development for the oil and gas sector or not, and a further 20 percent said it would make little difference to the industry.
Of those who expressed a firm opinion, the feeling was that remaining in the EU would be the best outcome, with 27 percent of respondents saying a Brexit would be unhelpful, compared to eight percent who believed it would be a positive development.
Future Priorities Among North Sea Contractors
While 42 percent of firms in the sector cited increasing efficiency and productivity as their main priority, one in four outlined cutting costs as their number one aim.
Eighty-five per cent of contractors expect to increase their involvement in decommissioning work over the next three to five years, up from 79 per cent in the previous survey and the highest figure since this question was first asked in 2010.
Just 14 percent of contractors reported that they are working at or above optimum levels in the UKCS, marking a significant decline from the figure of 79 percent reported three years ago. Overseas operations appear to be suffering too, with only one in four firms working at or above optimum levels overseas.
“Respondents have reported falls in activity, but a slightly higher number are working at capacity internationally,” said Aberdeen & Grampian Chamber of Commerce Chief Executive Russell Borthwick.
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