Industry body Oil & Gas UK has this week published their latest copy of the Business Sentiment Index. It shows that in Q4 of last year, optimism in the industry plummeted by sixteen points to -23 on a measurement scale of -50 to +50.
The industry body has said that this drop reflects a continuing downward trend witnessed over the previous seven quarters. Industry sentiment began to become less optimistic in the middle of 2012, just before the price of Brent Crude began its descent. This suggests that those in the industry were aware of the impending difficulties around operating in a mature, high-cost basin, where infrastructure was ageing, even in the face of oil prices reaching more than $100 bbl.
The industry body’s Operations Director, Oonagh Werngren, said that the figures showed that there are serious concerns in the face of genuine problems facing the UKCS, including notable falls in production efficiency and escalating operational costs, which were being magnified by the low market cost of oil.
Oil & Gas UK say that a majority of the survey’s respondents shared concerns that the continuing low price of oil, pitted against high operational costs in the mature basin, will increasingly erode competitiveness and make activity levels look uncertain. A number of operators are subsequently reviewing their budgets for the current year, and there are strong indicators that CAPEX in the sector will decrease.
Contractor firms that are already engaged on UK projects with a committed spend believe that the total repercussions of the low oil price are yet to be realised, and respondents from this sector shared their concerns that future investment in projects would be delayed or shelved entirely in the face of the challenging economic climate.
Werngren added that although the industry was facing significant challenges, there was positive news to take away, including a consensus view that the industry must now work together quickly and cohesively to address its efficiency and cost issues in the UKCS. She also reminded the UK government that urgent regulatory and fiscal reform would be essential to ensure the future of the UK’s offshore oil industry and the energy security of the country.