North Sea contractors' confidence 'at record low'

Confidence levels among oil and gas contractors were the lowest since the survey began in 2004

Contractors' confidence in the North Sea oil and gas industry is at a "record low", according to a survey.

It also found two-thirds of operators have been forced to cancel projects in the UK Continental Shelf (UKCS) because of the fall in oil prices

Just one in five contractors (21%) said they were working at or above optimum levels.

This was well down on the 47% recorded in the previous survey by Aberdeen and Grampian Chamber of Commerce.

Its 22nd oil and gas survey found only 7% of North Sea contractors were more confident about their activities than they were a year ago, compared with 76% who were less confident.

'Bittersweet positive'

That is the lowest figure since the survey began in 2004.

An increase in decommissioning was described in the report as "a bittersweet positive", with more than 80% of contractors involved in that work seeing increases in their activity in the past 12 months.

Just 8% of firms involved in exploration said they expected the value of exploration to increase in the coming year.

Tax issues were cited by 81% of contractors as a constraint on their activity in the UKCS, up from 28% in the last survey.

There were also increases in the number of respondents reporting "complex regulations", "cost of capital" and "access to capital" as constraints on their UKCS operations.

Analysis by Douglas Fraser, BBC Scotland business and economy editor

It's no surprise that the offshore oil and gas industry is downbeat, following the cut in the price of oil and the sharp cuts in its costs. But the latest survey figures are striking for showing such a big change.

The biggest change in perception since the last survey is in attitudes to tax and regulation. It seems that offshore operators were happy to pay tax and handle regulation while everyone was busy, investing heavily and making a lot of money.

But with the squeeze on, and with the tax regime highlighted by the debate over cutting it, that now feels much more of a burden.

It also suggests that the new Oil and Gas Authority, which has taken over regulation from Whitehall, has a job on its hands to persuade industry bosses that they will have to face more intervention.

That's if the authority is to meet its targets for maximising recovery of reserves, which will require companies to change behaviour, cut costs further and collaborate more closely.

James Bream, research and policy director at Aberdeen and Grampian Chamber of Commerce, said the survey results provided "clear signals that new opportunities exist", despite low confidence within the sector.

He said: "Confidence levels are at an all-time low and we are now experiencing our first 'recession of confidence', and it looks gloomy in the year ahead too.

"However, we have seen positive tax changes, the OGA (Oil and Gas Authority) team is bedding in and in the Queen's Speech the new UK government has committed to legislating for the Infrastructure Bill.

"There is lots to build on and just perhaps it is possible that we are seeing the start of the next phase in our role at the frontier of the oil and gas sector."

An OGA spokesman said: "We have moved quickly to establish the OGA and have welcomed the strong support of industry and government as we aim to maximise economic recovery of oil and gas from the UKCS (MER UK).

"The £1.3bn package of measures announced in the March 2015 Budget provided a welcome boost to the sector. It is now essential that industry redoubles its efforts to create a more competitive cost base, improve efficiency and increase productivity."

'Exploration credit'

A Scottish government spokeswoman said that changes brought by the Chancellor in his recent budget had not gone far enough to support the oil and gas industry.

She added: "In particular we note that survey respondents have highlighted the need to increase exploration drilling.

"We were disappointed that the changes announced by the Chancellor in his recent budget did not include the exploration credit which we proposed and which is clearly needed, however the forthcoming budget provides another opportunity for the UK government to take the necessary action to support exploration."

Scottish Labour's finance spokeswoman Jackie Baillie said: "While the recent oil price has been good for the economy overall, it has been a disaster for firms and families in the north east of Scotland.

"We need to do everything we can to make sure that the opportunities that are available through decommissioning are maximised to their full potential."

A total of 133 companies responded to the latest chamber of commerce survey. It was undertaken in partnership with UK law firm Bond Dickinson and conducted by the Fraser of Allander Institute.