NINETY-SIX per cent of senior executives believe the oil and gas industry will recover to “peak” levels of profitability, with one-quarter of them expecting it to happen within three years.
The optimism that the industry will flourish again has been revealed in major new research into the oilfield gas service sector by international law firm, Pinsent Masons.
The figures also throw up more good news about merger and acquisitions activity in the coming year, both in the North Sea and for UK firms looking abroad.
In addition, it highlights a strong confidence in the UK Continental Shelf (UKCS), the region of waters surrounding the UK, bouncing back much quicker than many have suggested.
Leading trade unionist Jake Molloy called on the oil firms to preserve highly-skilled staff instead of paying them off. The Scottish regional officer for the Rail, Maritime, Transport (RMT) union said: “If they are right, then it is fantastic news.
“I am glad to hear they are optimistic and I hope they are absolutely right but if it is going to happen then we should be preparing for it and not paying skilled workers off.
“If we lose our skill base and all the innovators and engineers, then it is going to cost a fortune to get back up and running again, so we have got to plan now and manage our way through a difficult period, so we are ready to go.”
In the survey of 200 senior executives across the oilfield services industry, 96 per cent said the UKCS will recover to peak levels of profitability and many predict it will be within three years, despite unprecedented price volatility,
The research states a clear desire to capitalise on distressed situations, grow international market share and acquire new technology will drive a surge in deal activity in the oilfield services sector in 2016.
It revealed 86 per cent expect oilfield services mergers and acquisitions to increase in the next 12 months, with 30 per cent anticipating a major surge and 70 per cent saying they were actively considering an acquisition within the next year.
Almost three-quarters (74 per cent) pinpointed expansion of overseas operations as the main driving force behind deal activity, with 70 per cent expecting opportunism around distressed assets to drive deals, while 60 per cent are looking at technology-driven consolidation.
Two-thirds (67 per cent) of respondents said the UK would be likely to yield opportunities for buyers during the next three years.
Almost half (48 per cent) expect the UKCS to rebound within five years, while over one-quarter (28 per cent) predict recovery within three years, subject to a general improvement in the oil price.
Peter Strachan, Robert Gordon University’s professor of energy policy, said: “With up to 22 billion barrels of oil still to be extracted in the North Sea, it is of no surprise that this new Pinsent Masons research study outlines that the UKCS will return to peak profitability, as oil prices recover, in the years to come.
“This is why it is more important than ever for the UK Government to safeguard the industry by abolishing punitive supplementary charges on oil company profits, to match pound for pound exploration costs, and to fully devolve oil and gas to the Scottish Parliament. Only by taking such action will the UK Government assure the industry and international investors that the UKCS is open for business and that economic recovery can be maximised.”
Pinsent Masons' partner in the oil and gas team, David McEwing, said the research “shows it is an industry on the cusp of transformation”.
He added: “There is encouragement to be taken from the optimism surrounding UKCS. There has been discussion in some circles about whether UKCS could ever recover to previous levels of profitability, but an overwhelming majority of those we spoke to see a recovery.”
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