Diversification plans

Oil and gas firms more inclined to pursue green projects

BP Clair Ridge

Oil and gas industry is changing

An increasing number of North Sea oil and gas firms are looking to diversify into renewables and decommissioning, according to a new survey.

A total of 86% of firms expressed some likelihood of engaging in decommissioning activity in the medium term, the highest result since the question was introduced in 2010.

The survey also shows the highest proportion of contractors since 2016 indicating expected involvement with renewables work in the near future.

The 31st Oil and Gas survey, conducted by Aberdeen & Grampian Chamber of Commerce with the Fraser of Allander Institute and KPMG UK, reveals that more than half (52%) of respondents report an increasing demand for their products and services in non-oil and gas projects. A further 25% are actively pursuing work outwith oil and gas, and only 11% plan no further diversification.

Recruitment continues to rise (54% of contractors have ncreased their total workforce in the last year compared to 40% in 2018). However, 44% of firms are finding it difficult to attract staff to the North-east, with a quarter claiming recruitment challenges were the result of difficulty recruiting for non-traditional roles.

Of those firms which have considered potential diversification, 34% flagged concerns around profitability and return on investment as the main barrier, closely followed by 31% of firms citing experience and skills within the organisation as a barrier.

Market stability remains the biggest concern for 88% of businesses. The political environment is also perceived to be a threat for a significant proportion of firms with 50% specifying Brexit and a further 22% identifying new regulations and/or tax legislation as an issue.

When it comes to operations within the UKCS itself, the survey shows contractor confidence continues to grow, remaining significantly above the long-term average, illustrating that firms continue to exhibit resilience in the face of ongoing uncertainty in the wider national economy. 

The recovery in the value of production-related activity in the basin is also continuing, with a net balance of 43% of contractors reporting increased value of activity and more than half expecting the value of work to continue to increase.  

The latest survey paints a positive picture for the oil and gas sector with growing confidence levels

– Martin Findlay, KPMG

Martin Findlay, office senior partner and tax partner at KPMG in Aberdeen, said: “Despite continuing uncertainty in the wider Scottish and UK economies, and the impact of climate change on investment priorities for providers of capital, the latest survey paints a positive picture for the oil and gas sector with growing confidence levels driven by a deep sense of resilience and an increasing focus on innovation. 

“Alongside rising confidence levels, production activity seems to be growing, with 43% of contractors reporting an increase – up from 28% 12 months ago. However, it’s clear that the downturn which hit the industry just a few years ago remains a risk factor, with 88% of respondents telling us the oil price and market stability is their biggest business concern.

“Scotland’s oil and gas sector remains a key growth driver and a vital economic powerhouse for the country but with new challenges on the horizon the industry is going through a period of transition rather than decline.

“We may not return to the periods of high growth witnessed in the oil and gas pre-downturn but the survey suggests the sector is resilient, confident and prepared for long-term, sustainable success.”

Shane Taylor, research and policy manager at Aberdeen & Grampian Chamber of Commerce, said: “It’s clear that the energy mix in the future will be far more diverse and for our existing supply chain there’s huge opportunity to be seized from diversifying into new markets and sectors proactively.”

Leave a Reply

Your email address will not be published. Required fields are marked as *

This site uses Akismet to reduce spam. Learn how your comment data is processed.