25 th Oil and Gas Survey Professor Graeme Roy Fraser of Allander - PowerPoint PPT Presentation

25 th Oil and Gas Survey Professor Graeme Roy Fraser of Allander Institute

Context • UK Oil and Gas sector prepares to enter the third year of the current low oil price period • UKCS production rose during the first half of 2016 but the outlook remains challenging. Production increases mainly achieved on the back of several years of investment in major new projects • Investment has fallen around 40% from peak • Sector resilience to global ‘shocks’ – e.g. Brexit & US Elections. www.strath.ac.uk/fraser

The Economic Backdrop 1.40% 1.20% Scotland UK 1.00% % chnage Q on Q 0.80% 0.60% 0.40% 0.20% 0.00% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2014 2015 2016 -0.20% www.strath.ac.uk/fraser

Exchange Rate - Depreciation 1.50 1.45 1.40 1.35 $ or € to £ 1.30 1.25 1.20 $ to £ € to £ 1.15 1.10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 16 16 16 16 16 16 16 16 16 16 16 www.strath.ac.uk/fraser

The survey • Since 2004, survey of contractors and operators • Regular (repeated) questions • Business confidence, activity this/next year, and medium term • Annual questions on labour market issues asked in Autumn/Winter surveys • Bespoke questions on the future skill needs of the industry and “hot topics” on Brexit and the business cycle. www.strath.ac.uk/fraser 5

The results www.strath.ac.uk/fraser

Confidence in UKCS 100 Business optimism in UKCS compared to a year ago Business optimism in UKCS over next year 50 Net balance (%) 0 May-Sept04 Jan-May05 Dec05-Mar06 Sept06-Dec06 May-Aug07 Jun-Oct09 Apr-Sept10 Apr-Nov11 May-Oct12 May-Oct13 May-Oct14 May-Oct15 May-Oct16 -50 -100 www.strath.ac.uk/fraser

Confidence elsewhere Business optimism elsewhere compared to a year 100 ago Business optimism elsewhere over next year 50 Net balance (%) 0 Jan-May05 Sep06-Dec06 Jun-Oct09 May-Sep04 Dec05-Mar06 May-Aug07 Apr-Sept10 Apr-Nov11 May-Oct12 May-Oct13 May-Oct14 May-Oct15 May-Oct16 -50 -100 www.strath.ac.uk/fraser

Activity levels Contractors working at or above optimum levels on UKCS work Contractors working at or above optimum levels on overseas work 100 75 Percentage 50 25 0 May-Sep04 Sept04-Jan05 Jan-May05 Aug-Dec05 Dec05-Mar06 Apr-Aug06 Sep06-Dec06 Dec06-Mar07 May-Aug07 Oct-Dec08 Jun-Oct09 Nov-Mar10 Apr-Sept10 Oct-Mar11 Apr-Nov11 Nov-Apr12 May-Oct12 Nov-Mar13 May-Oct13 Nov-April 2014 May-Oct14 Nov-April 2015 May-Oct15 Nov-April 2016 May-Oct16 www.strath.ac.uk/fraser

Workforce and redundancies • 68% of contractors reduced employment in last twelve months • Only 8% of contractors increased employment in the last twelve months • 25% of contractors reduced their workforce by more than 20% in 2016 • 50% of contractors expect no change to their UK based workforce in the next twelve months www.strath.ac.uk/fraser

Workforce changes, % Contractors All firms Operators/licensees Last year Next year Last year Next year Last year Next year -7 -8 -15 -1 -2 -5 • Also, further knock-on consequences through the (non-O&G) supply chain www.strath.ac.uk/fraser

Pay Awards Pay decreased by -4.5% (median) - 1 st time in history of the survey pay growth was negative 100% 80% % of respondents 60% Survey 21 (2014) 40% Survey 23 (2015) Survey 25 (2016) 20% 0% Down > Down > Down 0% No Up 0% to Up >5% Up >10% 10% 5% but to 5% change 5% but <10% <10% www.strath.ac.uk/fraser

Recruitment and retention • Recruitment and retention problems marginal • Although some fears raised over skill shortages with skilled personnel leaving the industry • Reasons for losing staff: • 45% of all firms lost staff to other industry • 33% of all firms lost staff to retirement www.strath.ac.uk/fraser

Hot topics • 58% say the UK’s decision to leave the EU has had no impact on their business • Change in $ exchange rates as a result of Brexit has had a negative impact for 46% of firms • The oil price fall since 2014 has had a negative impact for 91% of firms • 26% welcomed the stabilisation of oil price in recent months www.strath.ac.uk/fraser

The industry has reported that it has suffered skills shortages due to poor workforce planning in the 1980’s. Do you anticipate that we could be creating the same challenges as a result of this downturn? Yes, and this could be avoided 16.0 Based on current business levels it is unavoidable 39.2 17.6 No, last 2 years created 'fit for purpose industry’ Don't know 27.2 www.strath.ac.uk/fraser

What position do you expect to be in by 1 January 2017? Restructured and fit for 3.2 the future 16.0 Restructured but unsure of future 47.2 Growing 29.6 Declining www.strath.ac.uk/fraser

When do you think the sector will reach the bottom of its current cycle? • 29% said that it already had • 36% said it would bottom out within a year • 25% expect it to reach the bottom of the cycle within the next 1-2 years • 10% expect this to be longer than 2 years www.strath.ac.uk/fraser

25 th Oil and Gas Survey