Cuts Prompt Home Focus for Scottish Oil and Gas Sector

The high price of oil and a shortage of manpower and equipment have prompted Scottish oil and gas companies to concentrate more of their activity in the North Sea, according to a survey by the Scottish Council for Development and Industry (SCDI).

Total sales by service and supply companies hit a record level of GBP11.7 billion last year, an increase of GBP1.6 billion, with both domestic and international revenues increasing. However, for the first time since 1999, international sales fell as a proportion of total sales.

The survey, produced in collaboration with Scottish Enterprise, shows that total sales have increased by 150 percent since the SCDI first conducted a survey in 1997. Domestic revenues increased by 23.6 percent to GBP7.9 billion, the largest increase since the survey commenced.

Although international sales increased by 2.7 percent to GBP3.8 billion, they dipped as a proportion of total sales for the first time since 1999. Export of services increased 15.1 percent and for the first time topped GBP1 billion.

In the non-oil and gas energy category, 66 percent of sales were in renewables and power generation compared to 46 percent in 2004 and 24 percent in 2003. Some GBP298 million of business was done compared to GBP223 million in 2004.

The United States was the top international market and rose 13.9 percent to GBP915 million.

Almost all sales (96 percent) in North America were done through subsidiary companies, mainly based in Houston, Texas, rather than by direct exports. The problems of the political climate and threat of kidnappings did not prevent sales to Nigeria from rising by 67 percent to GBP185 million, and it became Scotland's second-most important market.

However, the challenging environment means that 82 percent of sales are managed from Scotland.

Russia is now Scotland's third-most important market, with exports up 35 percent to GBP155 million. Azerbaijan is the fourth-top destination for sales. Further opportunities exist in Eastern Europe if market access does not become restricted by protectionist policies.

Ian Armstrong, SCDI northeast manager, said: "The relatively high oil price has made domestic reserves much more attractive and this has led to a sustained and significant upturn in activity.

"The industry is extremely stretched in manpower, equipment and resources in handling this volume of business, and it seems possible that this explains the slowdown in the international growth rate.

"While interest in the North Sea remains strong, these constraints make it hard to predict whether there is capacity to significantly grow domestic sales in the coming years. This means it is critical for the industry's long-term future that management continues to focus on building international activity."

(C) 2006 The Herald. via ProQuest Information and Learning Company; All Rights Reserved.

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