Price slump hits oil and gas firms

According to the Bank of Scotland, 43% of UK oil and gas firms are planning further cost cutting to help manage the impact of the sector’s industry downturn.

Re-evaluating Strategies, the annual Bank of Scotland report on the oil and gas industry, analyses the state of the sector. The report found that 32% of businesses plan to cut more jobs this year as the oil price takes longer to recover than expected.

In particular, Scottish firms have been badly hit by the slump in oil prices, with almost six in 10 (57%) recording that their business has been severely or quite badly affected (against a UK-wide average of 41%.

Despite the slump in oil prices over a fifth (22%) of businesses are still looking at North Sea expansion opportunities. This is being driven by smaller and mid-sized companies who find it much easier to diversify and embrace new technology.

While 67% are looking at international opportunities, this is down on 91% last year. Noteworthy is the considerable drop in interest in North America, traditionally the favourite area for UK firms where only 16% of firms are looking at investment opportunities compared to 31% last year and the Middle East. West and North Africa are fast becoming hotspots for UK firms.

Losing a skilled workforce

Of the 141 companies questioned, 58% have had to introduce efficiency measures or cut costs over the last 12 months. Firms in Scotland felt the brunt of the losses most severely with 63% businesses reducing their workforce.

Re-evaluating strategies

Looking to the next 12 months, 48% expect to take efficiency measures to reduce operating costs and improve profitability, but firms are responding in entrepreneurial ways in order to tackle the challenges facing them.

The five most popular strategies being implemented in order to meet the cost challenges in the North Sea are: making day-to-day operational efficiencies (67%), rationalising supply chains (66%), adopting new technology (63%), followed by adopting new processes (60%) and product development (55%).

Four in 10 businesses began to diversify their operations (40%) last year, and this is set to continue in 2016. However, plans have changed since last year’s oil and gas report. Interest in onshore shale gas has dropped, with a third of companies (31%) giving it a high priority compared to half (47%) last year. While small firms have maintained their interest in renewables work (2015: 37%, 2016: 37%), mid-sized companies’ appetite in this areas has grown significantly, from 46 per cent in 2015 to 57 per cent in 2016.

Large, global operators (57%) see decommissioning as a major diversification opportunity. This sentiment may be driven by the anticipated £17 billion clean-up of redundant infrastructure over the next decade.

A long way to go

A third (33%) of operators said exploration and development activity will remain subdued until oil prices recover.

Stuart White, Area Director, Commercial Banking, Bank of Scotland, said: “The decline in the price of oil has made headlines around the world, and its knock-on impact on investment and employment has created economic headwinds that are being felt, not just by the industry but across the wider economy. With oil prices currently hovering around the US$50 mark there is hope that prices have bottomed out and have begun to slowly and modestly recover. Many businesses however, undoubtedly face more difficult decisions on cost savings, jobs and investment.”

“While the blow from depressed oil prices has been severe for many businesses and individuals impacted by job losses, the sector is proving itself to be among one of the most resilient industries in the UK. There are still choppy waters to navigate, but we remain committed to supporting our clients within the sector.”

Edited from press release by Angharad Lock

Read the article online at: https://www.oilfieldtechnology.com/offshore-and-subsea/06062016/oil-and-gas-firms-struggling-3446/