Confidence dips in oil and gas

Friday 31 October 2014

Umbrella company contractors and limited company contractors in the oil and gas sector may wish to err on the side of caution as optimism in the sector has dipped recently.

According to the quarterly Business Sentiment Index from industry body Oil and Gas UK, optimism has dropped from two points above zero to seven points below zero. It is intended to depict a snapshot of the mood across the industry.

It looks into a number of economic factors, such as business confidence, activity levels, business revenue, investment and employment. Ratings that are above zero suggest that there is a positive outlook in the sector while readings below zero suggest a negative opinion.

Factors as to why optimism has declined in the sector included rising costs, a reduction in drilling and a drop in oil prices.

Oil and Gas UK operations director Oonagh Werngren explained that this is the first time that optimism in the index overall has fallen to negative figures since 2009. Optimism has been on the decline for the last six quarters.

The oil and gas industry has been struggling to attract new investment in recent months as it has been thinking about the implications of falling oil price.

A number of survey respondents said they were concerned about future activity levels, which are not being encouraged by the rising costs in the sector.

Ms Werngren said that future policy movements could turn things in the sector around, however. Industry players are awaiting the 28th Licensing round, a new chief executive officer (CEO) being appointed to the Oil and Gas Authority and the results of the Treasury's fiscal review that is intended to make sure the North Sea Oil and Gas can remain competitive in the global marketplace.

She says that the outcome of these events will be a means of boosting confidence on the UK Continental Shelf (UKCS).

However, there are still some companies that are expressing optimism in the sector, though they are outnumbered by those that are less confident.

Oil and Gas UK has also been making moves to try to improve prosperity within the oil and gas sector.

Ms Werngren said: "Ahead of the announcement of the CEO for the new Oil and Gas Authority, the industry has been working with the Department of Energy and Climate Change (DECC) to implement some of the key recommendations of the Wood Report aimed at maximising recovery from the UKCS. This will help deliver both opportunity and certainty in the UKCS which, despite the current pessimism, last year saw capital investment reach £14.4 billion – its highest in three decades.”

The Wood Review was commissioned to study ways in which policy changes could be made to improve prospects in the oil and gas sector and ensure its prosperity in the future.

Earlier this year, two large companies in the North Sea, Amec and Wood Group, announced that they would be cutting pay rates for contractors in order to balance these expenses against rising costs in the sector.

By Victoria McDonnell

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