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Job cutting slows

Oil set for growth as confidence returns

Brent oil field

Oil sector: optimism returning


Oil and Gas companies are gearing up for growth as cautious optimism returns to the sector and job cuts slow down, new research reveals today.

The sixth annual Bank of Scotland Oil & Gas Report, which gathers views from across the industry and its supply chain, found that business confidence has grown in the last year. The net balance of firms that felt optimistic has soared to 39%, against just 2% in 2016.

The findings are consistent with other reports, including data from Aberdeen and Grampian Chamber of Commerce, showing greater confidence in the outlook for the sector.

Despite continued low oil prices, the Bank of Scotland found growth is on the agenda for more than half (58%) of companies.

The firms anticipating growth said they expect, on average, growth of 26% of their current annual turnover in the next twelve months, against the 49% who expected an average of 17% growth in the 2016 survey.

Looking ahead to the next twelve months, firms operating in the sector said they are looking to grow by generating organic growth (27%), diversifying operations (22%) and growing through mergers and acquisitions (9%).

Slowdown in job cuts

The survey found that job cuts in the industry over recent years appear to be slowing down. 

The percentage of firms anticipating job cuts in the next 12 months is down from a third (32%) in 2016 to a fifth (19%) this year. More than half (55%) of companies said they expect to increase their overall headcount over the coming year.

Reflecting on the past year, a fifth (19%) of firms said they had seen a net increase in staff numbers, hiring in some areas and making redundancies in others. A quarter of businesses (25%) made no changes to their headcount.

A net balance of 17% of firms said they plan to create jobs in engineering and fabrication; 10% said equipment supply and rental; and nine per cent said multi-discipline services. Headcount was expected to reduce in drilling (net balance of -12%) and subsea work (net balance of –5%).

Stuart White, Bank of Scotland regional director, mid markets North of Scotland, said: “While the blow from depressed oil prices has been severe for the many businesses and individuals impacted by job losses, the oil and gas sector is proving itself to be among one of the most resilient in the UK. 

“The expression of confidence in this year’s survey reflects an industry that appears to be turning a corner, with conditions for growth more favourable than they have been in recent times.

“There are still choppy waters to navigate, with political uncertainty at home and abroad, but we remain confident in the sector, and are committed to providing the support it needs as part of our pledge to help Britain prosper.”

Challenges

Despite the upturn in optimism, the survey found firms are expecting challenges in the coming year. 

Respondents cited the increasing cost of production (48%), value of sterling (44%), volatility of currency exchange rates (41 per cent) and uncertainty because of the EU exit negotiations (35%) as the biggest challenges for the industry.

Low oil prices also remain a challenge, with nearly a third (30%) of firms saying the issue had affected their business severely or quite badly in the past twelve months.

But the sector said it is planning on meeting cost challenges head on. Popular strategies are adopting new processes (68%), embracing new technology (68%) and making day-to-day operational efficiencies (63%). Rationalisation of the supply chain, cited by last year’s respondents as the priority for meeting cost challenges, has fallen in favour, from 66% to 44%. 

Home and abroad

The number of firms interested in domestic development has increased over the past twelve months. The majority (91%) expect to maintain or increase their exposure to the UK Continental Shelf (UKCS) in the coming year, up from 84% in the previous survey. While one in seven (15%) said they expect to expand operations in the North Sea over the next 12 to 24 months, the intentions of larger firms to expand in the region increased from zero to 17%.

However, the sector’s intentions to expand internationally are down year-on-year. Two fifths (43%) stated they had no interest in international expansion, up from a third (33%) in the previous survey.

Larger global operators were more optimistic, with intentions to expand in South America, the Middle East and Australasia more than doubling year-on-year, in line with increased development activities in these regions.

Despite evidence firms are returning to home ground, almost three quarters (70%) said that the current business climate had presented opportunities outside the UK.

The types of overseas opportunities being eyed by companies are new contracts (46%), new exporting opportunities (33%), diversification (33%), acquisitions (23%) and investment in new technology (15%).

Paul de Leeuw, Director, Robert Gordon University’s Oil and Gas Institute, said: “With the oil price more than halving since 2014, the industry had simply no choice but to focus on adjusting its cost base and improving operating efficiency. The relentless focus on cost and efficiency inevitably moved the agenda towards short-term delivery.

“This year’s survey is showing a more positive outlook for the UK oil and gas industry. Building on the cautious optimism reflected in the survey, it is encouraging to see that many companies are looking again at returning to profit, growing their business and recruiting new staff.”

 

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