An Oil and Gas industry survey reveals that the current financial climate has, in some areas, already had an impact on the sector and is expected to severely challenge business confidence in the future – despite UK operators and contractors still expressing a degree of optimism in both domestic and international markets.

The 10th Aberdeen and Grampian Chamber of Commerce Oil and Gas Survey, sponsored by McGrigors and conducted by the Fraser of Allander Institute, draws on responses from Oil and Gas operators and contractors to identify trends including activity levels, investment, skills supply, contractual matters and new market developments. The findings are used to identify how the performance of this sector might impact on the wider business community in North-east Scotland and the rest of the UK.

It shows the UKCS is transitioning from a period over the past few years of rising investment, activity and employment to face an increasingly uncertain future as a result of the current global economic recession, reduced energy demand and the compounding credit crisis. With current oil price at around $45 a barrel, the survey is all the more relevant.

Geoff Runcie, Chamber Chief Executive explains, “There may be a perception that the Oil and Gas sector has yet to experience the full impact of the downturn but this survey suggests that whilst there was a rising trend in total activity during 2008, some 25% of operators anticipate a level trend and 75% a reduced trend in total activity for the coming year. The UK trend is also mirrored in international activity with the 2008 rising trends in exploration, development and production activity expected to level off during 2009.

“The survey also suggests that the present global financial crisis will result in cutbacks and a change to the structure and pace of the industry’s investment, leading to a period of consolidation and reassessment of present operations and future plans.

“Respondents felt that the recent collapse in the oil price together with the continued uncertainty and limited access to working capital and long term loans will have a major impact on the level of activity in the sector and on the wider business community in both Aberdeen City and Shire. These concerns were also expressed at a recent workshop that included a cross section of Chamber membership, our Policy Council and Board.

Geoff concluded, “Given the findings of this survey it is clear there are real threats on the horizon. It is crucial that the UK Government implements in the forthcoming Budget a long term fiscal and energy policy that recognises the high levels of dependence on hydrocarbons and ensures the continued competitiveness of the UKCS and encourages future investment in the sector and the region.”

Bob Ruddiman, McGrigors Partner - Head of Energy says, "The survey highlights that yet again our industry is at a crossroads. Global financial markets are in turmoil, oil prices have collapsed and in the UK there has been a lack of fiscal consistency in respect of Energy. The current market forces threaten not only UKCS investment and development but also the international oil service business which emanates from the UK and plays such a vital role in our economy. Only a year ago the clarion cry was of a skills shortage and it is vital that Government and industry work together to ensure the sustainability of this sector in difficult times."