Oil and gas contractors seeking to maintain their contracting career in the UK’s North Sea should hold their nerve as, despite the oil and gas sector’s global downturn, considerable opportunities – including new sources of contracts - still remain.
Although confidence and activity levels have slumped along with the oil price, the Aberdeen & Grampian Chamber of Commerce’s (AGCC) 22nd Oil and Gas Survey highlights that “skills shortages and loss of staff have each increased as an issue”.
“Once again we have a set of results that give us clear signals that new opportunities exist. There is lots to build on and just perhaps it is possible that we are seeing the start of the next phase in our role at the frontier of the oil and gas sector,” highlights James Bream, research and policy director at AGCC.
“Can we grasp the opportunity to lead the way in decommissioning practices and become a new high efficiency basin as we mature faster than others? This is a mid-life crisis in the UKCS but as some people say life begins at 50.”
Confidence in North Sea prospects has plummeted
Two thirds of North Sea operators and one third of oilfield services companies have cancelled projects in response to the halving of oil prices. Only 7% of oilfield services companies are more confident about their UKCS activities than they were a year ago, compared to 76% who are less confident.
But as ContractorCalculator CEO Dave Chaplin notes, the survey shows this is diverting contractor clients’ energies into new markets: “In response to falling oil prices, 41% of service firms are choosing to accelerate their plans to expand into new markets. This is the behaviour of a market that is not complacent, and will offer contractors new opportunities as a result.”
Both operators and oilfield services firms have chosen to cut staff training in response to oil price falls, an action that will also benefit contractors: “Clients always scale back staff investment too fast and too deep and then discover they don’t have enough people with the right skills to operate safely and effectively.
“That’s when contractors are back in fashion. Despite their perceived higher costs, contractors offer a low risk contingent solution to skills shortages that can keep the oil and gas flowing.”
A fifth of contractor clients are still overstretched
The survey reports that the number of oilfield service firms that are working at, or above, optimum levels has declined steadily since 2013. However, even with the drastic falls in North Sea activity and investment, the report highlights that: “One in five contractors in the UKCS is working at or above optimum levels.”
Furthermore: “International activity offers some degree of comfort, with over half of contractors (52%) reporting working at or above optimum levels.”
Chaplin believes that contractors have a key role to play in supporting clients operating at and above capacity: “In addition to providing access to strategic skills, contractors can also increase their clients’ capacity during periods of high demand.”
Positive prospects for contractors with decommissioning skills
“One area showing increases in activity is decommissioning,” says the survey. “Over 80 per cent of contractors involved in decommissioning have seen increases in their activity in the last 12 months, and only one in four of these contractors (24%) expect the value of it to decrease in the next 12 months.”
“Decommissioning is the bittersweet positive in the survey,” explains Uisdean Vass, oil and gas partner at Bond Dickinson, the law firm that co-published the report. “Academics have been predicting an imminent spike in decommissioning for years but that spike is now well and truly upon us. Decommissioning is not driven by oil price or demand and could be very important in maintaining the value of activity in the North Sea.”
Nearly 80% of oilfield services firms have confirmed that they are “definitely or possibly likely” to become involved in decommissioning. This presents a target rich environment for contractors who have the relevant skills to work on decommissioning projects.
“This is an incentive for oil and gas contractors to focus their learning and development on what skills will help them win work as decommissioning lifts off,” adds Chaplin.
Vass concludes: “There are other opportunities for companies in the sector. It has never been more important for [services firms] to focus on technology improvements and internationalisation, and in world terms, there are new opportunities in unconventionals and in new jurisdictions.”