The latest business sentiment index published by industry body Oil & Gas UK fell further into negative territory during the first quarter of this year as explorers struggle to cope with historically low oil prices. The survey measures a number of indicators such as confidence, activity levels, revenue, investment and employment, with lower ratings below zero indicating a more negative outlook.
Oonagh Werngren, operations director at Oil & Gas UK, said sector optimism has been on a downward trend for the past eight quarters. The latest reading of -31 for the first three months of this year marks a further deterioration from the final quarter of 2014, when the index came in at -23.
Werngren said: “These figures indicate the industry’s focus remains firmly on reviewing and revising activities to achieve the significant efficiencies required when operating in the high-cost, mature basin of the UK Continental Shelf (UKCS), where the oil price fall has added further pressure to an already challenging business environment.”
Cut-backs by the majors have in some cases crippled smaller contractors. Earlier this week, Aberdeen dredging specialist X-Subsea fell into administration suffering “unsustainable” losses from a downturn in orders.
Meanwhile, Aim-quoted driller Trap Oil warned last month that it was facing collapse unless it can bring in urgent funding.
The company’s only producing asset is the Athena oil field, in which it has a 15 per cent stake. Trap Oil said in February it was losing about £380,000 a month from the field, about 110 miles north-east of Aberdeen, due to the low oil price. In a bid to cut costs, it has trimmed its workforce to about 13 people, from 16 a year ago.
Werngren added: “It is clear that since Q4 2014, contractor companies have begun to feel the full impact of operators pruning back budgets and commissioning fewer projects in response to rising operating costs.
“Contractor company respondents are adjusting to these challenging circumstances by re-evaluating their own resources. They are identifying opportunities for introducing more cost-efficient practices, deferring discretionary expenditure, re-bidding for key contracts, and this is all helping to curb increases in operating costs.”
Deirdre Michie, incoming chief executive of Oil & Gas UK, said the industry has a “tough journey ahead”.
“This is a difficult time for the offshore oil and gas sector,” she said. “We need to ensure a step up in its performance to deliver a positive and sustainable future.
“I look forward to working with industry, unions, governments and the regulators in moving this industry forward.”
Michie is taking over from Malcolm Webb, who is retiring after more than 40 years in the oil and gas sector.
He joined the trade body, then known as the UK Offshore Operators Association, as chief executive in 2004 and oversaw its transformation to Oil & Gas UK in 2007.
Michie has worked for Shell since 1986, where she has held a variety of senior roles. She is also a former vice-president and current council member of Aberdeen & Grampian Chamber of Commerce.