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UK Oil and Gas Industry Business Confidence Remains Fragile

Oil & Gas UK’s Q2 business confidence index published today (17 August) shows that the outlook of the UK upstream oil and gas industry remained fragile in the three months from April this year, increasing modestly from 51 to 54 points.

The index measures a number of economic indicators, including changes in business confidence, activity levels, business revenue, investment and employment. It gauges overall industry confidence on a 100 point scale, with a higher rating (above 50) indicating a more positive outlook and a lower rating (below 50) representing a more negative viewpoint.

Ken Cruickshank, Oil & Gas UK’s supply chain manager, said: “Across the operator community, confidence increased slightly from 46 to 48 points but this score still represents a negative outlook. Contractors are slightly more confident, with their outlook rising from 54 in the first quarter to 56 in the second.”

While still in negative territory overall, the operators’ two point increase in confidence was driven by the majors whose index rose by 13 points from a negative 39 to a positive 52. In contrast, the independent operators registered a one point decline dropping further into negative territory from 48 to 47.

Mr Cruickshank continued: “Confidence was hit at the end of the first quarter by the unexpected tax increase announced in the 2011 Budget. While it appears that some companies may feel reassured by the Treasury’s willingness to engage on ways to mitigate the negative impact of the tax increase on investment, the confidence of many independent operators in particular continued to decline in the second quarter.”

The contractors’ confidence recovered somewhat from its seven point decline in Q1 2011 with a two point increase in Q2, attributed to a rise among drilling and well services contractors and facilities providers. However, the marine and subsea and support services registered a drop in confidence.

Mr Cruickshank concluded: “The Q2 Index illustrates that the contractors are generally more positive regarding future investment and activity than operators. 27 per cent of contractors responding to the survey claim that activity levels are stable and that they expect that trend to continue, compared with just 18 per cent of operators.”

The key findings for the second quarter of 2011:

• Overall the Oil & Gas UK Index measured 54, an increase of three points from 51 in the first quarter.

• Operators’ outlook remained negative with a two point increase from 46 to 48. The major operators’ index rose from 39 points in Q1 to 52 in Q2 while the independents’ index fell 1 point in Q2 from 48 to47.

• Within the contractor community, confidence increased from 54 to 56 points but showed variation between sectors:

- drilling and well services rose by 11 points from 43 to 54

- facilities engineering, operations and maintenance increased by 5 points from 51 to 56

- marine and subsea recorded a 5 point fall from 69 to 64

- support services dropped 3 points from 57 to 54

The full survey can be found at http://www.oilandgasuk.co.uk/cmsfiles/modules/publications/pdfs/0P059.pdf

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