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Oil and gas industry fends off recession but needs political “vision”

24 November 2009

UK politicians have been urged to come up with “a vision beyond the next term of Parliament” for Scotland’s oil and gas industry as new research shows that it has weathered the economic downturn far better than other sectors.

While short term activity in the UK Continental Shelf (UKCS) is still depressed and business confidence remains frail, there are signs that operators and contractors are increasingly confident about their prospects in 2010. However, concerns about the long-term future of the sector have led industry-watchers to call for Government backing to ensure firms stay in the UK.

The 11th Aberdeen & Grampian Chamber of Commerce Oil and Gas Survey was conducted by the Fraser of Allander Institute at the University of Strathclyde. It found that the contractor community in particular is looking towards opportunities in international markets as a way of offsetting declining investment, re-assessment of projects and heightened concerns as to costs in the UKCS region.

The survey also highlighted how the industry is coping with a changing dynamic in the labour market-place as it continues to grapple with price volatility, the global financial downturn, uncertain demand and curtailed or delayed investment.

Of note, it found that unlike in past recessions, the Scottish oil and gas community has been keen to hang on to skilled labour this time around, preferring to freeze wage rates rather than make redundancies.

Robert Collier, the chief executive of the Aberdeen & Grampian Chamber, welcomed the industry’s attitude to retaining talent but warned that contractors being wooed away from the UK could also be bad news.

“The change in business confidence is more marked in the international context which may have an up as well as a down side,” he said. “The export of skills and products is good, but we must ensure that fiscal policy also encourages the industry to remain firmly anchored to the UKCS.”

Bob Ruddiman, the head of energy at law firm McGrigors, which sponsored the survey, reiterated those concerns. “The UK oil and gas industry offers the economy a dual benefit of maximising our indigenous hydrocarbon potential whilst also being a key exporter,” he said.

“The politicians have a duty to ensure we have a fiscal environment which encourages this and an energy policy which transcends political boundaries and has a vision beyond the next term of Parliament.”

Those comments echo the views of Malcolm Webb, the chief executive of the oil industry body Oil & Gas UK, who earlier this month called on the Government to cut tax rates in order stimulate exploration and production activity in the North Sea.

Focusing on the burgeoning subsea industry, Mr Webb said that without additional support from the UK Government and a focus on efficiency and cost control by the industry itself, there was a risk that many firms could be enticed away from the country.

According to oil and gas consultancy Hannon Westwood, there are something like 27 billion barrels of oil remaining under the North Sea. However, there is increasing speculation across the industry as to how those reserves can be produced effectively.