Rising number of oil and gas firms engaged in energy transition Nov 27 2019 | Aberdeen & Grampian Chamber of Commerce

Almost 40% of North Sea operators and contractors are concerned about diversification and energy transition with around half (49%) working to reduce their carbon footprints or develop low carbon solutions, according to an industry report released today (Wednesday, November 27).

The findings of the 31st Oil and Gas survey, conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and KPMG UK, reveal that more than half (52%) of respondents report an increasing demand for their products and services in non-oil and gas projects, with a further 25% actively pursuing work outwith oil and gas, and only 11% planning no further diversification.

A growing number of businesses are seeing opportunities in less traditional activities such as decommissioning and renewables. A total of 86% of firms expressed some likelihood of engaging in decommissioning activity in the medium term, the highest result since the question was introduced in 2010. The survey also shows the highest proportion of contractors since 2016 indicating expected involvement with renewables work in the near future, showcasing the changing nature of opportunities across the supply chain.

However, while recruitment continues to rise with 54% of contractors having increased their total workforce the last year (compared to 40% in 2018), 44% of firms are finding it difficult to attract staff to the North-east, with a quarter claiming recruitment challenges were the result of difficulty recruiting for non-traditional roles.

Of those firms who have considered potential diversification, 34% flagged concerns around profitability and return on investment as the main barrier, closely followed by 31% of firms citing experience and skills within the organisation as a barrier.

When asked to consider the top concerns for the next ten years, oil price and market stability remains the biggest concern for 88% of businesses. The political environment is also perceived to be a threat for a significant proportion of firms with 50% specifying Brexit and a further 22% identifying new regulations and/or tax legislation as an issue.

When it comes to operations within the UKCS itself, the survey shows contractor confidence continues to grow, remaining significantly above the long-term average, illustrating that firms continue to exhibit resilience in the face of ongoing uncertainty in the wider national economy. The recovery in the value of production-related activity in the basin is also continuing, with a net balance of 43% of contractors reporting increased value of activity and more than half expecting the value of work to continue to increase. 

Martin Findlay, office senior partner and tax partner at KPMG in Aberdeen, said: “Despite continuing uncertainty in the wider Scottish and UK economies, and the impact of climate change on investment priorities for providers of capital, the latest survey paints a positive picture for the oil and gas sector with growing confidence levels driven by a deep sense of resilience and an increasing focus on innovation.

“Alongside rising confidence levels, production activity seems to be growing, with 43% of contractors reporting an increase – up from 28% 12 months ago. However, it’s clear that the downturn which hit the industry just a few years ago remains a risk factor, with 88% of respondents telling us the oil price and market stability is their biggest business concern.

“Scotland’s oil and gas sector remains a key growth driver and a vital economic powerhouse for the country but with new challenges on the horizon, the industry is going through a period of transition rather than decline. We may not return to the periods of high growth witnessed in the oil and gas pre-downturn but the survey suggests the sector is resilient, confident and prepared for long-term, sustainable success.”

Shane Taylor, research and policy manager at Aberdeen & Grampian Chamber of Commerce, said: “It’s clear that the energy mix in the future will be far more diverse and for our existing supply chain there’s huge opportunity to be seized from diversifying into new markets and sectors proactively. Businesses continue to cite profitability and talent as some of the key barriers which prevent them from considering further work outside of the industry, with these challenges raised by around a third of our respondents respectively.

“Given that talent attraction is constraining the industry’s ability not just to grow in the now but to diversify in the future, it makes it all the more important that the industry engages with key initiatives such as Roadmap 2035 to upskill current workers and attract the diverse workforce the industry will need to succeed in the coming decades.

“Fundamentally, few of the major challenges facing firms in the sector are likely to be solved overnight. What is clear is that some of the big issues, particularly talent attraction and the energy transition, will benefit from a collaborative approach to showcase where the industry is actively taking action. Around 50% of firms indicated that they have strategies in place which outline targets to reduce their emissions or explore low carbon solutions. Proactively pursuing these strategies, and demonstrating real success, will be key in engaging the talent the industry needs to continue to contribute to the UK’s energy security for decades to come.”

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