Aberdeen & Grampian Chamber of Commerce said contractor confidence in the North Sea and UK Continental Shelf (UKCS) has risen — with almost half being more confident about their prospects for the first time since 2013.
The 27th Oil and Gas survey, conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and KPMG, finds that 49% of contractors surveyed are more optimistic about their activities in the current year, up from 38% since the spring survey.
The survey looked at work in the six months to October 2017, asking firms about their prospects in the year ahead as well as the next three to five years in order to assess trends in exploration and production, decommissioning, renewable and unconventional oil and gas extraction activities both in the UK and international markets.
It found that a net balance of 39% continue to expect a rise in optimism in the year ahead, with almost half (48%) more confident and only 9% less confident.
The share of contractors working at, or above, optimum levels in their UKCS operations peaked at 79% in 2013 and has been declining steadily over the last three years to a low of 12% last year.
However the latest results show this has improved, with 27% of contractors now identifying that they are working at, or above, their optimum levels in the UK.
The survey also indicates contractors’ expectations of greater involvement in decommissioning activity over the medium term with 83% reporting potential involvement in the next three to five years.
James Bream, research and policy director at Aberdeen & Grampian Chamber of Commerce, said: “The underlying data suggests that rather than an industry with ‘cautious optimism’ we actually see a picture of significant diversity with some companies buoyant and performing well while others remain fragile.
“It does look like the worst is likely to be over, at an aggregate level, with 60% of firms believing that the industry has already reached the bottom of its current cycle and a further 24% predicting this will happen within the next 12 months.
“However as activity levels and revenue remain lower for many compared to three years ago business models for some may be simply unsustainable.
“When asked what position businesses expect to be in by January 1, 2019, 54% expect their business to be growing while none expect to be declining.
“This is a vast improvement on the findings from a year ago and indicates that the businesses which have been able to withstand the downturn are seeing a change in their operating environment and are focused on the potential upside.
“We were perhaps surprised that the expectation is that in 2025 respondents on average felt 72% of revenue would still be from core oil and gas activity.
“We may need to be more ambitious around diversification to secure growth to retain the scale of the sector at these percentages, unless we see a large increase in UKCS capital investment or a step change in internationalisation.
“Both of these feel unlikely at the moment with the sector already performing well on the latter measure.”
When asked to give their predictions as to when the sector will reach the bottom of its current cycle, the majority (60%) felt it already had, compared to 52% in the spring and only 29% this time last year.
A further 24% forecast this will happen within the next 12 months and 11% anticipate that it will happen within 1-2 years. Only 6% felt that it would take longer.