Oil and gas industry sentiment in the UK plunged dramatically in Q4 2014, according to the results of a survey published today.
Oil & Gas UK’s Business Sentiment Survey says optimism in the oil and gas industry fell 16 points to -23 points on a -50/+50 scale.
The decline continues a downward trend seen over the last seven quarters and the overall index has slumped further into negative territory for the second quarter in a row, reflecting the increasingly difficult environment faced by North Sea producers.
Already deemed inefficient, expensive and with falling production, concerns about the state of the industry were already high, before oil prices nearly halved between July last year and today's prices, adding further pressure to the industry. Some facilities are no longer making money, under today's oil price, Oil & Gas UK has already said.
The survey results have been published as industry and government leaders join today at a summit in Aberdeen to discuss the current situation, and how to mitigate any damage, with city leaders.
Oil & Gas UK’s CEO Malcolm Webb is due to warn senior political figures attending the Aberdeen Oil and Gas Summit that "an unpredictable and harmful business environment has put the UK’s oil and gas industry at great risk and that realism about the continuing prominence of oil and gas in the UK’s energy supply should be a guiding principle in future policy decisions."
Reflecting the results of the survey, Oonagh Werngren, Oil & Gas UK’s operations director, said: “Unsurprisingly figures published today reveal serious concerns within the industry in light of the very real problems which face the UK Continental Shelf (UKCS), including rising operational costs and a substantial drop in production efficiency. These existing problems, apparent even when the oil price was above US$100/barrel, have been exacerbated by the recent fall in oil price.”
Many of the survey respondents expressed a growing concern that the impact of oil price combined with the challenge of operating in a high cost, mature basin will increasingly have a negative effect on future activity levels. A number of companies say they have been reviewing their budgets for 2015 and there are clear signs that capital expenditure across the sector will drop.
Comments from contractor companies, working on UK oil and gas developments where investment is already committed, suggest that the full impact of the oil price is yet to be felt although respondents expressed their concern that future projects could be delayed or cancelled in the current economic climate.
Speaking today in Aberdeen, Webb is due to say: “If we are to avoid lasting damage to this industry and its £35 billion supply chain, now is the time for meaningful action. The industry is having to take tough decisions and implement necessary cost reduction and efficiency improvement measures. Alongside this, the Department of Energy must proceed as quickly as possible with the full establishment of the new Oil and Gas Authority, and HM Treasury must radically reduce the tax burden on this mature oil and gas province. We at Oil & Gas UK would also support the suggested City Deal for Aberdeen City and Shire.”
Werngren concludes: “While the UK oil and gas industry faces clear challenges as a result of the basin’s maturity, and more recently the oil price, it is now at a turning point. The positive news is that there is a clear consensus that the industry must accelerate its efforts to address the costs and efficiency of its operations across the UK. Alongside this, urgent government action on fiscal and regulatory reform is essential to help secure the next phase of development in the North Sea.”
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