Oil and gas survey shows 2012 optimism despite lingering impact of 2011 Budget

The continuing concerns focus particularly on perceptions in the industry as to the potential instability of the UK’s fiscal regime following last year’s unexpected announcements.

On a more positive note however, the survey also shows that the UK oil and gas sector continues to outperform the rest of the Scottish economy; the outlook remains positive with increased activity planned and demand for employment remaining strong. Within the UKCS optimism continued to recover although confidence in international markets is even higher.

Sponsored by law firm Bond Pearce and conducted by the Fraser of Allander Institute, the survey is the 16th in the series and draws on responses from oil and gas operators and contractors to identify trends in several areas including investment, exploration and employment. It also focussed on the competitiveness of the UKCS and business constraints. The findings are used to identify how the performance of this sector might impact on the wider business community.

For the first time the survey included a question on whether the planned referendum in Scotland in 2014 and its possible consequences is a factor in future plans and investment proposals. More than one in three surveyed indicated that it was a factor.

Key investment areas identified in the findings included developing new markets, cost reduction and staff development. There were also signs of companies expanding and developing their UKCS and internationally based activities in Aberdeen.

The focus on competitiveness of the UKCS highlighted a number of positive areas for the sector including technical expertise and excellence, specialist and subsea services, the skills base and developed supply chain. Concerns were raised as to the impact of the fiscal regime on competitiveness, the continued high demand for key skills and the increased use of lower cost staff from other countries.

Robert Collier, Chief Executive of Aberdeen & Grampian Chamber of Commerce, said: “The oil and gas sector has helped ensure Aberdeen City and Shire has remained largely sheltered from the current economic downturn facing the rest of the UK and its importance to the region cannot be underestimated.

“This survey helps develop Chamber policy and for the first time included a question on the proposed referendum on Scottish Independence. Results were inconclusive and we plan to repeat the question in future editions to monitor any trends or changes in responses.

“Optimism in the sector is strong and the overall outlook is good, but this will only be realised if the right environment is put in place to allow the sector to flourish by removing the barriers to growth and building policy stability.”

Paul Stockley, Joint Head of Oil and Gas at Bond Pearce, said: “While the survey confirms that the future is looking considerably brighter than it was at this time last year, it also raises concerns about safety regulation, skills shortages and local infrastructure which we in the industry must work together to act upon.

“There is significant unease about the possibility of the European Commission taking over regulation of offshore oil and gas safety, which we believe could be a dangerous mistake. The UK, post Piper Alpha, has demonstrated that it has the strongest and most robust regime. The EU proposals are not only unnecessary and unworkable, but may undermine the UK’s high safety and environmental performance.

“We are delighted to be involved with the AGCC and this survey because our interests are aligned with those of the industry – to make Aberdeen stronger as an Energy hub, to internationalise from Aberdeen, to ensure the right skills are available across the board and to make working in oil and gas as safe as it can be.”

The key findings from this 16th survey are:

• The oil and gas sector continues to outperform the rest of the Scottish economy and demand for employment remains strong;

• The outlook for the UK Continental Shelf (UKCS) remains positive and the latest survey indicates increasing activity. There are more signs of merger and acquisitions, investment continues to strengthen and a number of major developments, approved before the 2011 Budget, have been announced. The changes in the 2012 Budget, a reflection of successful lobbying by Oil & Gas UK supported by the Chamber network, appear to be contributing towards more positive views within the industry as to possible future developments and increased activity;

• Nevertheless, the legacy of the 2011 budget lingers in terms of perceptions as to the potential instability of the UK fiscal regime. The outturn in the net trends in investment by contractors was lower than had been anticipated prior to the 2011 budget;

• Global demand for oil continues to strengthen reflecting rising demand amongst developing economies, but essentially flat demand in developed economies. Substantial uncertainties remain as to production and demand levels. In the medium term the increased interest and investment in recovering shale gas reflects the potential contribution shale gas could make to energy supplies, gas prices and current energy policies;

• Within the UKCS optimism continued to recover, more so for international activity;

• The demand for staff continued to improve, but this was more noticeable amongst larger and international companies, reflecting higher levels of activity internationally;

• Overall investment continued to be more directed towards developing new markets, cost reduction and staff development than towards other areas, but there were signs of respondents expanding and developing their UKCS and internationally based activities in Aberdeen;

• Respondents identified a number of areas in which the UKCS was competitive including technical expertise and excellence; specialist and subsea services; computer applications; the skill base and developed supply chain. Concerns were raised as to the adverse impact of the fiscal regime on competitiveness, the continued high demand for key skills and the increased use of lower cost staff from other countries;

• Overall the level of demand remains the key driver for the sector, but concerns were evident as to taxation and regulatory issues, including proposed European Union (EU) regulatory changes.