Bad times for the North Sea oil and gas sector

Oil projects close due to price crisis

Two out of every three oil and gas firms operating in the North Sea have been forced to scrap projects in the wake of the ongoing oil price crises, a survey has revealed.

Compiled by Aberdeen and Grampian Chamber of Commerce together with law firm Bond Dickinson, the report came up with some rather disconcerting conclusions, stating that confidence in the sector has hit the all-time low.

Up to 70 per cent of the firms surveyed have seen their value fall over the past year, with only 8 per cent of them expecting the value of exploration to increase in the coming year.

A marked increase in decommissioning activities was described in the survey, with up to 80 per cent of decommissioning contractors reporting increased activity in the past year.

Only 7 per cent of the surveyed firms said they were more confident about their activities in the North Sea region than they were a year ago, compared to 76 per cent who are less confident.

The percentage of firms that reported working at or above optimum levels in the region has also fallen to its lowest level since the survey began in 2004.

Although some respondents have welcomed tax changes for the sector introduced in the March Budget, 81 per cent of contractors stated tax issue presented a major constraint on their activities together with the lack of investment.

"The UK oil and gas sector is going through a regulatory and fiscal transition at blistering pace and, with a new regulatory authority in the OGA, companies in the sector are understandably increasingly concerned about how they will be affected," said Uisdean Vass, oil and gas partner at Bond Dickinson.

"Decommissioning is the bittersweet positive in the survey. Academics have been predicting an imminent spike in decommissioning for years but that spike is now well and truly upon us.”

He further stated that it is more important than ever for companies to focus on innovation, technology improvements and international cooperations.

700 companies including contractors, operators and service companies were interviewed between March and April last year. Two thirds of the operators and one third of the contractors stated they were forced to cancel projects due to the oil price crises. All firms were active in the North Sea region but it was not stated whether the affected projects were located in the region as well.

The second most common consequence for operators was reduced staff training.


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