Oil and gas sector in economic turmoil, says report

The UK oil and gas sector is in “economic turmoil” amid the coronavirus pandemic with about a fifth of firms expecting more redundancies in 2021, according to a new report.

Aberdeen and Grampian Chamber of Commerce (AGCC) said reduced activity levels and project cancellations had seen business optimism “slashed”.

Confidence is now said to be as low as during the industry downturn in 2015.

The findings came in the 32nd AGCC Oil and Gas Survey.

It covers the six months to October.

The survey was carried out in partnership with the Fraser of Allander Institute and KPMG UK.

It asked firms about the initial Covid impact, how they expected activity to recover, and further issues such as energy transition and Brexit.

The survey found that only 13% of contractors were working at, or above, optimum levels in the UK Continental Shelf (UKCS) compared with 47% a year ago – with 82% predicting a decrease in revenue in 2020.

A total of 23% of contractors reported cancelling projects as a result of the coronavirus outbreak, with a further 34% putting activities on hold.

More than three quarters of businesses – 78% – were less confident about activities going forward, while only 1% were more confident.

AGCC said that while businesses typically reported higher levels of optimism about their international activities, the latest results marked the lowest recorded levels of confidence in global markets in the history of the survey.

‘Unpredictable disruption’
About half of contractors surveyed reported a decline in their workforce – 22% of which said reductions equated to more than 10% of their workforce – and about a fifth of surveyed firms said they expected to make further reductions in 2021.

A total of 83% of contractors furloughed employees.

AGCC research and policy manager Shane Taylor said: “Over the course of this year we have seen drastic and unpredictable disruption to business globally due to Covid-19, combined with the collapse in oil and gas prices.

“Although government support has had clear value in supporting firms and jobs through this challenging period of suppressed demand, the only sustainable way to give businesses and workers clarity is a clear route to heightened levels of activity in the future.”

‘Room for some optimism’
Martin Findlay, senior partner at KPMG in Aberdeen, added: “From the significant oil price decline, which started earlier in the year, to a global pandemic, and localised lockdown in Aberdeen, the oil and gas industry has, once again, endured profound challenge and uncertainty.

“However, there is room for some optimism. The industry, unlike so many others, is incredibly resilient and frequently deals with instability and challenge.”

Industry body Oil and Gas UK (OGUK) said the finding were further confirmation of the “stark conditions” faced bythe sector.

Chief executive Deirdre Michie said: “We remain particularly concerned about the health of our world-class supply chain.

“OGUK continues to work with industry to see what we can to together to safely increase activity and protect jobs.”

The survey involved 100 firms employing more than 22,000 people across the UK and 400,000 globally.

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