E&P activity across the UKCS hits highest levels since 2014

The value of exploration and production activity across the UK Continental Shelf (UKCS) has reached its highest levels since 2014, narrowing the gap between UKCS and international market confidence for the first time in five years, according to the latest findings of the 28th Oil and Gas Survey.

According to survey, conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and KPMG, firms have shown rising optimism about future prosperity of the UKCS region, despite continuing to look to international markets for business growth.

Focusing on work in the six months to March 2018, the survey asked firms about their prospects in the year ahead, as well as the next three to five years in order to assess trends in exploration, production, decommissioning and other related oil and gas extraction activities both in the UK and international markets.

Overall, almost two thirds (64%) of contractors reported being more confident about doing business than two years ago, while 8% were less confident. This net balance of plus 56% is greater than the plus 39% recorded in the previous survey and the highest net balance recorded since spring 2013. Seven in 10 contractors expect the upward momentum to continue. 

This follows a tough few years for UKCS-related exploration work, whose value dipped to its lowest point in autumn 2016, but has finally recovered to a net balance of 3%. The value of international exploration work has also been negative since spring 2015, however, in this latest survey a net balance of plus 4% of contracting firms indicated an increase, with a net balance of plus 18% expecting a further rise during the coming year. 

Contractors are reporting a more positive outlook for production-related work in the UKCS. For the first time since 2014, firms have expressed a rise in the value of production activities, with 46% forecasting a further increase in the 12 months ahead.

There is also positive news on the investment front. While 41% of contractors – the highest figure since autumn 2014 – are now working at or above optimum levels in the UKCS, more firms (30%) increased their investment in the region in the last 12 months than those who had reduced their spend (21%). This marks a significant shift from two years ago, with the trend expected to continue in the next two years. Operators and licensees, on balance, are also forecasting a rise, suggesting the sector’s own outlook is increasingly positive.

Moray Barber, Partner at KMPG said: ‘Over the last couple of years, the survey has showed us that firms have been more focused on international markets for business growth. However, the latest set of survey results indicates that there is now a rebalancing taking place, with our region becoming just as important again in terms of securing future growth.’

Barber added that challenges still remain in terms of skills shortages and cash flows, particularly for small and medium enterprises (SMEs), which she attributes to ‘lengthy payment terms’ set by the UK’s new Payment Practices and Performance Reporting (PPPR) regulations and Oil & Gas UK’s Supply Chain Code of Practice. She adds: ‘We need to see improvements in this area if the sector as a whole is to flourish.’

The sector also continued to see a slowdown in the rate of job reduction. Whilst operators are, for the large part, forecasting a reduced slowdown in job reduction, contractors in the supply chain reported a 0.2% increase in headcount, indicating the recent trend in net job reduction has halted. The survey also showed that 70% of firms are forecasting an increase in profits in 2018.

Russell Borthwick, Chief Executive of Aberdeen & Grampian Chamber of Commerce, said: ‘The oil and gas sector has faced up to some significant structural challenges over recent years and is beginning to emerge fit for the future.’

He added: ‘The future strength of the sector depends on operators, contractors and suppliers continuing to work together in the new way as the climate continues to improve.’