Survey: Downcycle bottom near, job cuts slowing down?

More than two thirds of employers shed staff over the past year – by 15% for operators and 7% for contractors, according to an industry report released today, however there may be some positives..

However, bad news first. The 25th Oil and Gas Survey, conducted by Scotland’s Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander, shows that more contractors have reduced both their permanent and contract staff than at any other point in the history of the survey and fewer are working at or above optimum levels than ever before.

The survey, which showed that 67% of all firms reduced their employment in 2016, was sponsored by national law firm Bond Dickinson.

As the industry has worked to drive down costs and adapt to the new low oil price landscape, the survey reveals that 43% of respondents have reduced pay in the past year, including 15% who cut it by average of 10%, the report shows.

In addition, 40% of all firms – compared to 25% in the previous survey – reported making significant changes to terms and conditions.

This is not only salary and bonus payment reductions, but also in changes to shift pattern and working hours, pension contributions, medical plans and benefits packages.

Cuts slowing down?

However, the survey says there might be some positives, as there are signs that the rate of employee cuts could slow in the year ahead.

Six months ago, operators were predicting a 17% reduction in numbers which has now fallen to 5%, with a similar reduction from 2% to 1% by contractors, the survey shows.

Confidence levels have also improved for both the UK Continental Shelf (UKCS) and internationally over the past 12 months, albeit from the lowest point since the first survey in 2004.

Twelve percent of contractors are more confident about their activities in the UKCS in the current year, compared to 7% in May, while 47% – down from 75% – are less confident.

Bottom of the cycle near?

Also, than half of the firms asked (65% in total) feel that the current downcycle has reached the bottom, or it will reach it in the next year.

A quarter (25%) expects the bottom of the cycle to occur within the next one to two years and 10% felt that this would take more than two years.

By January 1, 2017 almost half of firms (47%) expect to be “restructured and fit for the future” and 16% expect to be growing. However just under a third (30%) expect to be “restructured but unsure of the future” though only 3% expect to be declining.

By January 1, 2017 16 percent of the firms expect their business to be growing while only 3% expect to be declining.

According to the survey, 53% of contractors are either possibly or definitely expecting to be more involved in renewables activity, while 79% of all contractors are expecting to be more involved in decommissioning activity in the same period.

Uncertain 2017

The 79 percent figure for decommissioning is lower than the one in the previous survey when 85% of the companies surveyed reported that they were “definitely” or “possibly”
likely to be more involved in decommissioning.

“It is unclear from the results of the survey why there has been an increase in the number of firms reporting that they will not be involved in decommissioning in the future. Firms may have ruled this out as an income stream since Survey 24,” the Chamber said.

130 companies responded to the survey, representing a response rate of 15% of companies contacted.

James Bream, research & policy director at Aberdeen & Grampian Chamber of Commerce, said: “We’re likely to remain in an uncertain position through 2017 and ‘the bottom’ will arrive at different times and feel different for each company.

“It is clear that companies are striving to become fitter, leaner and they are working hard to look for new markets to secure their future and employment levels where that is within their control.

“There is no question of complacency in the North-east and our brilliant people will continue to demonstrate that the oil and gas sector should be considered a success story in generating economic value for the UK economy.”