Escalation of Pay Rates in Scottish Oil & Gas Sector Caused by Skills Shortages

Escalation of Pay Rates in Scottish Oil & Gas Sector Caused by Skills Shortages (2)

The oil and gas sector is continuing to outperform the rest of the Scottish economy, according to new survey findings published today (5 November 2012).

The 17th Aberdeen & Grampian Chamber of Commerce oil and gas survey reveals that activity and confidence in the sector continues to rise with a strong demand for employment and increasing investment on the part of both operators and contractors. Involvement in decommissioning work and renewables, however, remains limited.

Recruitment and skills shortages continue to be major issues for a highly skilled industry in which the average wage is currently around £64,000, more than double the national average wage of around £25,000. While the national average has risen by just 1.5% over the past year the survey shows that in the oil and gas sector companies have generally been paying increases of between 5% and 12% to attract or retain staff.

The global outlook for the sector in 2013 remains positive, although continuing political and economic uncertainties and the development of unconventional gas and oil production may change the shape of the international energy market in the medium term.

Sponsored by law firm Bond Pearce and independently conducted by the Fraser of Allander Institute, the survey is carried out twice a year and draws on responses from oil and gas operators and contractors to identify trends in areas including investment, exploration and employment. The findings are used to identify how the performance of this sector might impact on the wider business community.

Kenny Paton, Oil and Gas Partner at Bond Pearce, Aberdeen, said: “The potentially very positive future for the industry is clearly illustrated by this survey which also highlights the considerable challenges of skills shortages and costs.

“The big hopes for the future, the decommissioning and fledgling offshore renewables industries, have not yet made too much of an impact and the focus is still firmly on oil and gas activity which seems to have been stimulated by positive fiscal moves. Salaries in the sector continue to soar as companies poach expertise from one another to try to plug the considerable gap, particularly in the 35-49 year age group with eight to 15 years of experience.

“As the UK competes globally for investment it is important that issues like skills, salaries and the continuing uncertainty over decommissioning are not allowed to kill the goose which is laying the golden egg,” said Mr Paton.

Robert Collier, Chief Executive of Aberdeen & Grampian Chamber of Commerce, said: “The oil and gas industry is a vital element of the Scottish and UK economies. Our latest survey findings give considerable cause for optimism, including new investment and activity. However, it also highlights the continuing issue of skills shortages which is driving staff cost increases across the industry. In the longer term, significant new blood will be required to combat the cycle of companies recruiting experienced staff from each other.

“Whilst the outlook for 2013 also looks positive the industry will surely keep a weather eye on global demand factors and issues closer to home, including the Scottish independence referendum in 2014, when considering their longer term plans. North Sea oil and gas is a significant topic in the referendum debate and we will see how the policy proposals surrounding it feed through into business planning in the sector in subsequent surveys,” said Mr Collier.

 The key findings from the 17th survey are:

The oil and gas sector continues to outperform the rest of the Scottish economy and demand for employment remains strong;

Activity and confidence continues to improve after the low level of exploration activity in 2011 and the latest survey again indicates increasing activity, more signs of merger and acquisitions, and strengthening investment by both operators and contractors. Changes announced after the 2011 Budget and changes in this year’s budget again appear to be contributing towards more positive views within the industry as to future possible developments and increased activity;

Global demand for oil and gas remains strong. The increasing interest in reserves in the Mediterranean offer considerable potential for both UKCS based operators and contractors. The interest in unconventional gas reserves offers the potential to dramatically reshape the global energy market with implications for both government policies and energy prices;

More than a third of respondents reported involvement in decommissioning activity, although a majority reported it was not relevant to their area of work;

A quarter of respondents reported being involved in renewables activity, and some extensively, but generally interest in this area was limited due to a combination of focussing on current core areas, lacking expertise, concerns as to costs and limited developer activity;

The demand for staff remained strong with the majority of respondents working above planned hours and all operators and two thirds of contractors reported increasing staff numbers;

Recruitment activity was virtually universal both to acquire additional staff and to replace staff and difficulties in recruiting staff were widely reported;

All operators and 94% of contractors reported increasing pay, average pay increases remained above national averages and 40% reported changes to terms and conditions, mainly to enhance payments linked to retaining staff.

Most respondents continued to recruit mainly from within the sector and this contributed to concerns as to the adequacy of the labour pool, poaching of staff and escalation of pay rates. The main reasons for losses of staff included moving within the sector to other companies and moving to other regions.

November 6, 2012

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