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Warning UK oil and gas boom may be faltering

THE boom in the UK oil and gas industry may be fading, a survey has indicated, although around half the services companies working in the North Sea expect to increase investment in the area.

EXPERT VIEW: Rising costs and falling production are dark clouds forming over the North Sea.
EXPERT VIEW: Rising costs and falling production are dark clouds forming over the North Sea.

The Aberdeen & Grampian Chamber of Commerce oil and gas survey published today found the percentage of services businesses operating at or above capacity in the UK North Sea fell from 63 per cent in November to 52 per cent, the lowest level since late 2011.

The survey also reveals a sharp fall in the percentage of contractors working at or above optimum levels in international markets, to just 47 per cent, from 73 per cent in November.

Highlighting increasing competition in international markets, the chamber of commerce offered a sober assessment of the results.

"More stable trading expectations are returning after rapid growth in recent years," it said.

The findings come at a time when giants like Shell and BP are investing billions of pounds in developing new fields West of Shetland to cash in on booming demand for energy around the world. This is generating a bonanza for services firms that help them develop and run facilities.

However, the results of the survey suggest the extraordinary surge in activity in the North Sea seen in recent years may be easing off.

The net balance of contractors who were more confident about their UK business than a year ago, rather than less confident, fell to 17 per cent. This was the lowest percentage since 2010.

The results could trigger concern at a time when the industry is facing challenges in the UK, where many fields are in decline but operating costs are relatively high.

"Rising costs, falling (though stabilising) production and a lack of exploratory drilling are the dark clouds over the North Sea," said Uisdean Vass, partner at Bond Dickinson law firm, which sponsored the survey.

The chamber said the survey, completed by the Fraser of Allander Institute at Strathclyde University, highlighted uncertainty about how the sector will be affected by major political events.

Some 45 per cent of respondents said the referendum on independence for Scotland set for September is impacting on their plans and investment proposals.

However, Robert Collier, chief executive of Aberdeen & Grampian chamber, said: "The UK oil and gas sector faces a challenging time but the industry is responding well, with many increasing investment spend in the United Kingdom Continental Shelf and overseas."

While spending in the North Sea is likely to fall when the big projects planned off Shetland are completed in coming years, the survey findings highlight the strengh of current market conditions.

All the respondents that operate oil and gas fields said they are working at or above optimum levels in the UK North Sea.

Thirty-five per cent of all respondents, including operators and contractors, reported an upward trend in investment in the last 12 months.

Around half, 49 per cent, of contractors have scheduled investment to increase over the next 24 months.

The findings indicate firms are spending heavily on staff training, amid reports of skills shortages. They are also investing in new markets.

UK firms face fierce competition from overseas rivals in home and international markets.

The chamber said it was typically small firms that were working below optimum levels. The percentage of contractors working at or above optimum levels in the UKCS reached a high of around 80 per cent during the 2012/13 financial year.

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