Ongoing economic uncertainty as well as lasting effects of the Chancellor’s tax grab, continues to impact negatively on confidence and investment in the UK oil and gas sector, reveals the 15th Aberdeen & Grampian Chamber of Commerce Oil and Gas Survey.
More than half the respondents, which is sponsored by national law firm McGrigors, and conducted by the Fraser of Allander Institute, said the shock Budget announcement which increased tax on the profits of oil and gas operators by 12%, had a direct affect on activity and planned long term investments in the sector.
The survey is the 15th in the series and draws on responses from oil and gas operators and contractors to identify current trends in several areas including investment, exploration and employment. The findings are used to identify how the performance of this sector might impact on the wider business community.
The focus on skills and recruitment highlighted re-emerging issues for the industry. Skills shortages, inflation and the need to retain core staff are beginning to drive up salary costs for contractors. Both operators and contractors said average pay increases were higher in 2011 than in 2010 and higher than the UK average. Concerns that staff were transferring to the renewables sector were less evident than in the previous skills survey in 2010.
The majority of operators reported rising exploration and development activity in 2011 and expect these trends to continue through 2012. Over the next three years the majority of operators and contractors again expect to increase staff, reflecting expansion of activities, international working and to meet needs in specialist disciplines.
Robert Collier, Chief Executive of Aberdeen & Grampian Chamber of Commerce, said: “When David Cameron visited Aberdeen in October he said the budget tax increase had not damaged the industry. Our survey has shown that 50% of oil and gas operators felt it had negatively affected investment plans. Whilst the tax grab may not have halted all future projects, what it has done is harm the potential of the North Sea and risks some fields being left undeveloped. It is ironic that reduced activity will reduce the amount of tax paid to the treasury.
“Our survey also revisited the issue of skills and highlighted several re-occurring problems. The industry continues to rely on recruiting from within and as a result is driving up pay for individuals rather than looking to recruit people from other sectors into the industry. This may be good for the contractors but it is not in the long-term interests of the sector, adding to the problems of skills shortages and rising staff costs. The industry must do more to address this problem.”
Bob Ruddiman, Head of Energy at McGrigors, said: “The prediction of seasoned industry observers of how the sudden Budget tax increase would dent confidence and undermine trust in the UK oil and gas industry has been borne out by this survey.
“There is no great comfort in being able to say to Westminster politicians that ‘we told you so’, and it is time to move on, but we have to hope they have taken on board the strong message from operators that without a stable and transparent tax regime, investment capital will be diverted to other oil and gas producing regions and the UKCS will pay the price of Government meddling.
“The skills shortage issue is an ongoing problem which can also have a lasting impact on our ability to explore and extract hydrocarbons and a more joined up approach to attracting the next generation of technicians, engineers and support personnel is badly needed if we are to maximise returns in the next 20 to 30 years.”
The key findings from this 15th survey are:
- Ongoing economic uncertainty both globally and in the UK continues to impact on business confidence and activity, the continuing euro zone sovereign debt crisis and slow down of the economic recovery together with ongoing policies to reduce government expenditure raises uncertainties as to future demand and investment decisions;
- Business confidence in the UKCS amongst operators has eased, and whilst improving amongst contractors it is weaker than at the beginning of the year. In contrast confidence as business internationally remains stronger;
- Notwithstanding rising work activity levels, over 50% of contractors still report working below optimum levels with respect to UKCS based activities;
- All operators and 87% of contractors sought to recruit staff more for additional staff resources than in our previous skills survey;
- Average pay increases were higher in 2011 than in 2010 and higher than the UK average and reflected the need to retain core staff resources, shortages of key skills and inflationary pressures/cost of living in the local economy;
- Recruitment and retention problems were generally higher in the industry than in 2010. Overall, retention problems were more evident in the UK rather than internationally based firms;
- Recruitment problems reflected general shortages of skilled and experienced professional staff resources;
- Most continued to report the main source of staff was from within the sector and the main losses were due to staff leaving to work in other firms in the sector;
- Concerns that staff were leaving to the renewables sector were less evident than in the previous skills survey in 2010;
- Over the next three years the majority of operators and contractors again expect to increase staff, reflecting expansion of activities, international working and to meet needs in specialist and ancillary disciplines.
Notes to Editors:
Full report: A copy of the full report can be seen on the Aberdeen & Grampian Chamber of Commerce website at www.agcc.co.uk/ogs
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