Oil sector's confidence in North Sea hits record high

Group Business Correspondent

Thursday 23 August 2012

CONFIDENCE levels reached a fresh record high in the North Sea in the second quarter as oil and gas firms ramped up activity to meet strong demand.

POSITIVE FEEDBACK: The latest survey by Oil & Gas UK found confidence had increased as companies try to cash in on the rapid growth in China and India. Picture: Angela Catlin

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MARK WILLIAMSON

However, some are concerned that a shortage of drilling rigs and people with the right skills could limit growth in the market.

The latest survey, by Oil & Gas UK, found confidence increased from the high reached in the first three months in spite of the fall in oil prices during the period amid fears about the outlook for the eurozone.

The increase in the headline confidence index, to 65 from 64 in the preceding period, was the third in successive quarters recorded by the industry body, which described the results as encouraging. It regards a reading above 50 as positive.The rising trend reflects a surge in investment by firms that want to boost output to cash in on rapid growth in countries like China and India.Majors like BP and Shell have announced a series of bumper projects in areas such as West of Shetland in recent months.The tax breaks included in the March Budget have encouraged investment in some previously marginal projects and helped to mollify operators who were angered by the surprise tax hike in 2011."Operators are busy with a number of major projects, including several sanctioned last year, and appear buoyed by the tax changes aiming to promote investment that were announced following constructive dialogue between the Government and industry," said David Ripley, Oil & Gas UK's supply chain director.The report findings will boost hopes that the sharp fall in North Sea production in recent months will be reversed. The reduction in oil and gas output resulting from the leak from Total's Elgin field and maintenance work by firms on other assets was partly to blame for the UK trade deficit surging to a 15-year high of £4.3 billion in June.Oil & Gas UK said services firms continue to enjoy high activity levels in the UK and have been winning work overseas.On Tuesday, Wood Group, the Scottish oil services giant, posted a 56% increase in first-half profits, to $160 million (£102m), partly driven by strong activity levels in the North Sea. Wood Group said the North Sea market could remain strong for years.However, Oil & Gas UK highlighted concerns about an apparent shortage of essential assets including drilling rigs and of skilled workers."[Contractors] have, however, become aware of the challenge of sourcing skilled personnel and equipment, for example drilling rigs, in a tight market, with operating and manpower costs rising and margins being squeezed," said Mr Ripley.The confidence index reading for producers increased to 63 in the second quarter, from 61 in the first three months.The reading for contractors was stable at 66.The price of Brent Crude oil fell to an 18-month low of $88.49 per barrel in June but has risen to around $115 per barrel since then, partly reflecting tensions between some western countries and Iran. Oil & Gas UK started the confidence survey in January 2009. It had responses from around 300 firms for the latest survey.

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Oil sector's confidence in North Sea hits record high

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