CONFIDENCE among companies working in the North Sea is rising and, for the first time in five years, those operating in the UK Continental Shelf (UKCS) and international markets are equally optimistic, according to an industry report.
The 28th Oil and Gas survey by Aberdeen and Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and KPMG, showed that while firms have in recent years looked to international markets for business growth, confidence is returning to the UKCS in terms of potential future prosperity.
Overall it revealed that almost two-thirds (64%) of contractors are more confident about doing business than they were a year ago with only 8% indicated being less so.
This net balance of 56% is substantially up from the 39% recorded in the previous survey and the highest net balance recorded since spring 2013.
Going forward, seven in 10 contractors (71%) expect this upward momentum to continue.
The trend in the value of UKCS exploration-related work, which has been negative since spring 2014 and dipped to its lowest point in autumn 2016, is finally in the black at a net balance of plus 3% and it expected to rise to 21% in the next 12 months.
International exploration work’s value has, on balance, also been negative since spring 2015 but this latest survey shows a net balance of 4% of contracting firms indicating an increase, with a net balance of 18% expecting a further rise in the coming year.
Contractors also have a more positive outlook around production-related work in the UKCS. For the first time since 2014, a fifth of firms have expressed a rise in the value of production activities, with 46% forecasting a further increase in the next 12 months.
There is more good news on investment with 41% of contractors – the highest figure since autumn 2014 – now working at or above optimum levels in the UKCS, and more firms (30%) increasing their investment in the region in the last 12 months than those who had reduced their spend (21%).
This is a significant shift from the position of two years ago and the trend is expected to continue in the next two years. Operators and licensees, on balance, are also forecasting a rise, suggesting the sector’s own outlook is increasingly positive.
Chamber chief executive, Russell Borthwick, said that after some significant and structural challenges in recent years, the sector is beginning to emerge fit for the future.
“Companies across the ecosystem have and continue to adapt and adjust their approach to ensure the industry’s future viability with collaboration and co-operation as well as the implementation of new technology to improve efficiency being cited,” he said. “It does appear that a corner has been turned but we must avoid complacency.
“The future strength of the sector depends on operators, contractors and suppliers continuing to work together in the new way as the climate continues to improve. A steady recovery, not a return to boom and bust is what is required. What is clear is that oil and gas will remain a key contributor to the Scottish and UK economies for many years to come.”
Moray Barber, a partner at KPMG, said the rise in confidence was heartening.
“Over the last couple of years, the survey has showed us that firms have been more focused on international markets for business growth,” he said.
“However, the latest set of survey results indicates that there is now a rebalancing taking place, with our region becoming just as important again in terms of securing future growth.
“Firms are telling us that whilst commodity prices remain an important factor, the extent to which they might hinder growth has lessened significantly. Perhaps this is a sign that firms now consider themselves to be suitably agile in terms of their business structures.
“The industry generally continues to be more positive ... lengthy payment terms continue to be a problem for SMEs. Against a backdrop of the UK’s new Payment Practices and Performance Reporting (PPPR) regulations and Oil and Gas UK’s Supply Chain Code of Practice, we need to see improvements in this area if the sector as a whole is to flourish.”
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