Oil and gas contractors looking to remain in work in the UK’s Continental Shelf (UKCS) in the North Sea have been provided with some positive indications that prospects will improve, despite confidence in the sector continuing its current downward trend.
The Aberdeen & Grampian Chamber of Commerce’s (AGCC) 23rd Oil and Gas Survey suggests that, whilst confidence amongst service providers in the UKCS has slumped to its lowest levels recorded, concerns over “excessive” levels of redundancies and the willingness of firms to explore alternate revenue streams could mean that contractors could see an upturn in fortunes if they hold their nerve.
“The low confidence levels being reported come as no surprise and the outlook suggests there will be more pain ahead for the sector,” notes James Bream, research and policy director at AGCC.
“However, if we are not complacent, a long-term future still exists for the sector. The fact is that the UKCS is a frontier basin and always has been. This provides a unique set of opportunities which can continue to allow our supply chain to be active around the globe, but this success is not guaranteed.”
Confidence in UKCS prospects continues to fall
“Contractor’s confidence in the UKCS is at its lowest ebb since the start of the survey,” explains Uisdean Vass, oil and gas partner at Bond Dickinson. “But while there is little to be positive about in the short term, there are some glimmers of hope.”
Almost four in five (79%) contractors report to be less confident about their prospects, when compared with last year, whilst a mere 1% are more confident. Meanwhile, just 16% of oil and gas service providers report working at or above optimum levels, a 21% decline from 2014.
The sharp fall in confidence has been punctuated by the fact that 31% of contractors and other workers leaving services companies have chosen to depart the sector altogether. This figure is up from 19% in 2014. Meanwhile, a further 29% have left services companies to retire.
Reduced talent pool plays into remaining contractors’ hands
Whilst these aren’t particularly positive signs for the industry, it does mean those who are willing to brave the current climate can benefit from a significantly smaller pool of competition once conditions improve and contractor demand picks up.
The apparent exodus within the oil and gas contracting sector looks to have contributed to another promising statistic. The survey reveals that the amount of contractor vacancies per 100 jobs has risen markedly to 2.7, suggesting continued prospects for hiring, in spite of an expected overall decline in employment.
The report also highlights that, over the next three years, employment growth within the sector is largely expected by contractors, who returned a net balance of +28% when questioned.
“We might be about to “turn a corner” but it appears we have not yet reached the bottom in terms of redundancies in the sector. Nevertheless, there do appear to be vacancies for talented and skilled individuals,” the report reads.
Redundancies spark skills shortage concerns
Sustained low oil prices have inevitably led to high levels of redundancies across the sector. The report shows that 64% of firms surveyed have reduced their workforce over the past 12 months, compared to just 14% who increased their headcount.
These cuts are seen by many businesses as necessary to ensure that the industry is fit for the future, with 54% of surveyed firms in agreement that redundancies made are a strategic response to market conditions.
However, 58% have expressed concerns that the amount of redundancies has been excessive and places firms at risk of losing out on key skills. The report highlights that this response was found to be far more common amongst services companies than it was amongst operators and licensees.
“Firms are slashing headcounts in order to remain economically viable,” highlights ContractorCalculator CEO Dave Chaplin. “If the concerns are warranted, and firms do suffer from a shortfall in necessary skills, contractors provide a temporary, cost-efficient and logical solution for affected businesses.”
Contractors on hand as businesses consider other sources of revenue
Contractors who are prepared to wait in the wings – or work in another oil and gas province over the short-term - could eventually see opportunities in the form of alternative revenue streams – namely within the growing decommissioning sector.
79% of surveyed firms expect to engage in decommissioning work within the next three to five years, with decommissioning experience unsurprisingly expected to be the most in-demand attribute over the next three years.
Vass describes the anticipated increase in decommissioning activity as a “bitter-sweet positive”, noting that whilst heralding a more rapid decline in offshore exploration, it will generate a temporary alternate revenue flow.
Contractors could also find opportunities within unconventional oil & gas activities, as well as renewables work, with 67% and 46% of businesses expecting to engage in either, respectively.
“The survey shows that there may still be plenty of potential sources of contracts in the UKCS,” concludes Chaplin. “Within a shrinking pool of candidates, those who have worked hard to diversify their skillset could find their talents in significant demand. As well as decommissioning experience, international experience and project management skills are high on the agenda for firms looking to recruit.”