Almost half of Britain’s oil and gas businesses are planning further cost cutting as they struggle to adapt to the lower oil price environment, a study today predicts.
The Bank of Scotland’s fifth annual report on the industry – entitled “Re-evaluating Strategies” – analyses the state of the sector today and the challenges it faces in the future.
It found that 43 per cent of companies are planning further cost-cutting measures because of the downturn, with 32 per cent of businesses planning to cut jobs.
The sector has already seen the loss of tens of thousands of posts, a slump in investment and the collapse of some businesses, while others have been forced to diversify.
The report, which also covers the supply chain, found that Scottish firms have been particularly badly hit by the fall in the oil price, with almost 60 per cent noting that their businesses had been “severely” or “quite badly affected” – against a UK-wide average of 41 per cent.For every six jobs lost in 2015, only one new job was created.
Of the 141 companies quizzed for the report, 58 per cent have had to introduce efficiency measures or cut costs over the last 12 months while for 51 per cent this has involved making redundancies.
In Scotland, 63 per cent of businesses reduced their workforce compared to an average of 42 per cent across firms surveyed in England and Wales.
Despite the slump, more than a fifth of businesses are still looking at North Sea expansion opportunities. The study found expansion was being “entirely driven by smaller and mid-sized companies who find it much easier to diversify and embrace new technology” while none of the larger firms surveyed have planned any North Sea growth.
Just over two-thirds – 67 per cent – of firms are looking at international opportunities, down on 91 per cent last year, largely driven by a considerable drop in interest in North America and the Middle East.
Meanwhile, 26 per cent of firms surveyed said they had grown through the downturn by diversifying into new sectors and investing in new technology. Two-fifths of businesses began to diversify their operations last year and this is set to continue in 2016.
Stuart White, area director, commercial banking, Bank of Scotland, said: “The decline in the price of oil has made headlines around the world, and its knock-on impact on investment and employment has created economic headwinds that are being felt, not just by the industry but across the wider economy. With oil prices currently hovering around the $50 mark there is hope that prices have bottomed out and have begun to slowly and modestly recover.”
A third of firms stated it would be 2018 before the price of Brent crude oil recovers to the $75 to $80 a barrel area, while 38 per cent believed the rise of the oil price to that level would happen no sooner than 2020.