Aberdeen & Grampian Chamber of Commerce. Oil and Gas Survey

Transcription

1 Aberdeen & Grampian Chamber of Commerce Oil and Gas Survey 27 th Survey: November 217

2 Survey context This latest report of activity and sentiment in the oil and gas industry comes amid an ongoing challenging business environment for the sector. In response, firms have undertaken significant action in recent years to reduce costs, improve production efficiency and diversify to help support long-term sustainability. For example, the Oil and Gas Authority estimate that average unit costs have fallen by a third from 18 per barrel in 214 to 12 per barrel in 216. And despite the recent challenges, the sector is still estimated to support over 3, jobs in the UK with an oil and gas supply chain servicing domestic and global markets to the tune of over 12 billion (Oil and Gas UK). That being said, a number of significant clouds dominate the horizon. Whilst the average price of oil is around 3% higher over the first six months of 217 compared to the same period in 216, it has dropped back and remains at a level that is likely to support relatively limited new investment. The long-term outlook for prices whilst uncertain, remains subdued. Efforts to restrict global supply have had some impact but production continues to outpace robust demand growth. Uncertainty over the impact of Brexit remains, particularly in terms of access to key markets and skilled labour. The low value of Sterling following the EU referendum has helped some in the sector boost revenues both from oil and gas sales and global supply chain activities. Overall trends in activity remain relatively fragile. Whilst production is forecast to continue to rise this year and next, the current low level of exploration and appraisal activity remains weak. Only eight appraisal wells spudded in 216 (the lowest since 1971). Capital investment is also forecast to continue to decline with levels of investment in 216 down nearly 5% on 214 levels. The challenges in the oil and gas industry continue to spill-over into the wider Scottish economy. Annual growth in Scotland s onshore economy is currently around one third that of the UK as a whole. Further measures by the UK Government may help maximise the economic recovery of the UK s offshore oil and gas resources. Contents SPONSORS FOREWORD 4 CHAMBER VIEWPOINT 5 KEY FINDINGS 6 BUSINESS OPTIMISM 8 TRENDS IN BUSINESS ACTIVITY 11 RECRUITMENT, RETENTION AND SKILLS SHORTAGES CURRENT INDUSTRY CHALLENGES APPENDIX

3 Sponsor s foreword Chamber viewpoint The Aberdeen & Grampian Chamber of Commerce (AGCC) Oil & Gas Survey, produced in partnership with the Fraser of Allander Institute, has long been a reliable barometer for the current health and future outlook of the oil and gas industry in the UK, and KPMG is proud to partner with AGCC on the survey. It is evident from this 27th Oil & Gas Survey that the industry, in general, is now in a more stable condition. Having endured a painful period of cost cutting and efficiency improvements, followed by a more productive phase of value creation and new ways of working, we are encouraged by some of the results, in particular that 6% of companies believe that the industry has already reached the bottom of its current cycle. However, given only 27% of contractors say they are working at or above their optimum levels in the UK there is clearly some way to go to get back to 213 levels of productivity. That said, this survey demonstrates increased confidence and a rise in optimism for the year ahead with both operators and contractors forecasting an increase in total employee numbers going forward. This is welcome news. Given the importance of the work force and increased employment it is vital that oil and gas businesses continue to focus on the recruitment of the best talent into the industry, as we look to digital technologies and intelligent automation to drive increased performance and productivity from the UK Continental Shelf (UKCS) and international operations alike. Whilst the trend for skilled workers to leave the industry is easing marginally there is still a clear need to attract and incentivise new talent to work in oil and gas, whether that be straight from school and university or people from other sectors who can bring a different perspective to the challenges the industry faces. The impact of Brexit in particular on attracting international talent into the UKCS and the North East of Scotland remains to be seen, but the industry needs to do its bit to ensure that it is regarded as the natural home for forward-thinking and creative minds. Being that home will ensure the industry capitalises on the opportunity to harness the technological innovation required - both in core oil and gas but also potential areas for diversification - to deliver on the rising optimism voiced in this latest survey. Finally, it is worth noting that the announcement in the Autumn 217 Budget Statement regarding the implementation of the Transferable Tax History for North Sea assets is welcome and should assist the basin remain competitive as it fights for increasingly scarce sources of capital. This innovative approach to levelling the playing field for all investors should help with the long term goal of Maximising Economic Recovery ( MER ) in the UKCS. A demonstration of innovative thinking and ways of working within the industry itself coupled with the resilience that the sector has demonstrated over the last few years should mean that the cautious optimism voiced by nearly half of the respondents in this survey will continue to deliver stronger results during 218 and beyond. Moray Barber, partner, KPMG Welcome to the 27th Aberdeen & Grampian Chamber of Commerce oil and gas survey once again undertaken in partnership with the Fraser of Allander Institute at Strathclyde University. This is however the first time we have partnered with global advisory company KPMG on this research project. Without the support of enlightened companies around the North-east we could not continue doing the work we do representing businesses of all shapes and sizes so to have the KPMG team alongside us on this piece of work is vital and appreciated. The report provides more evidence that the industry is now looking to the future and trying to move on from three years of challenging trading. Most key indicators including UKCS confidence, use of capacity and international confidence are improving and we should feel positive about that. However, for a little while now the data has been telling us to be careful about considering the industry as one single generic thing and looking simply at averages. The underlying data suggests that rather than an industry which might be displaying cautious optimism across the board, we see a picture of some diversity. The responses show that many companies are buoyant and performing well but others remain fragile. This report does find that the worst of the longest and deepest downturn in the sector is likely to be over, with 84% of firms (at an aggregate level), believing that the industry has already passed the bottom of its current cycle or that it certainly will within the next 12 months. However, with activity levels (and revenues) remaining lower compared to three years ago some business models may simply be unsustainable. The legacy of this period has been starkly highlighted in recent weeks with two well-known companies connected to the energy sector filing for administration. Having said this, when asked what position respondents expect to be in by January 219, 54% project that their businesses will be growing while none expect to be declining. This is a vast improvement on the findings from a year ago and indicates that the companies which have been able to withstand the downturn are beginning to see the upside from the changes they have been forced to make allied to an improved operating environment. The Chamber aims to take a long-term view of the outlook for the sector and for the first time we have asked for a view of where we might be in 225. It was perhaps surprising that the expectation is that by this point respondents felt 72% of revenue will still be coming from core oil and gas activity. If that 72% is to also sit alongside a sector which remains the same financial size we will have to significantly grow the scale of the international share of business from 5% of revenue. It may be better to aim to a reduce reliance on oil and gas (from 72%) through diversification to mitigate against the risk that UKCS capital investment or activity levels do not rebound in the next 8 years. As always there much of interest in the survey just looking at core business issues without us even talking in the foreword about Brexit, employment and fiscal / regulatory issues! However, I m only allowed 5 words James Bream, research & policy director, Aberdeen & Grampian Chamber of Commerce 4 5

4 OIL AND GAS SURVEY SUMMARY Key findings from Oil and Gas Survey 27 Contractors confidence in the UKCS remains positive and has improved slightly from the previous survey with a net balance of 39% compared to 28% six months ago 61% 61% of contractors are either possibly or definitely expecting to be involved in unconventional activity in the UK in the medium term Contractors confidence is relatively higher for non- UKCS markets, and this survey recorded a positive net balance of 51% for current optimism and 53% for future non-ukcs activity By January 1, % expect their business to be growing while none expect to be declining CONTRACTOR VACANCY RATE 2.7 PER JOBS up from 1.9 per jobs a year ago 54% of firms report changing the overall structure of their organisation in the past 6 months EMPLOYMENT 23% of all firms reduced their employment in 217, while 3% increased employment Operators have experienced a 6.2% decline in their UK-based workforce while contractors have experienced a 1.3% decline in the last 12 months 47% of firms anticipate that the decision to leave the EU will have no impact on talent attraction within the sector and 33% felt that it will impact talent attraction JUST 27% of contractors are working at or above optimum levels up from 12% FIRMS WERE ASKED TO PREDICT WHEN THE SECTOR WILL REACH THE BOTTOM OF ITS CURRENT CYCLE NEXT THREE TO FIVE YEARS 24% predict this will happen within the next 12 months 6% feel that it already has 11% anticipate it will happen within one to two years 6% feel that it will take longer 54% of contractors are either possibly or definitely expecting to be more involved in renewables activity in the next three to five years 83% of all contractors are expecting to be more involved in decommissioning activity in the same period 6 7

5 Business optimism United Kingdom Continental Shelf In the current survey, business confidence among contractors has improved further from the lows seen over the past few years. This latest survey found that in the six months to October % of contractors (up from 38% in the spring 217 survey) are more confident about their activities in the UKCS in the current year, while only 11% are less confident. This net balance of plus 39% is the highest net balance since the November-March 213 survey. With regard to the outlook over the year ahead, a net balance of 39% of contractors continue to expect a rise in optimism with almost half (48%) more confident, and 9% report being less confident. Business Optimism For the first time since 213 around half of the contractors responding are more confident about UKCS activities when compared to the previous year, a welcome change. CHAMBER VIEWPOINT Figure 1 - Contractors: business confidence in UKCS Net balance May - Sep 4 Sep 4 - Jan 5 Jan - May 5 Aug - Dec 5 Dec 5 - Mar 6 Apr - Aug 6 Sep - Dec 6 Dec 6 - Mar 7 May - Aug 7 Oct - Dec 8 Jun - Oct 9 Nov 9 - Mar Apr - Sep Oct - Mar 11 Apr - Nov 11 Nov 11 - Apr 12 May - Oct 12 Nov 12 - Mar 13 May - Oct 13 Nov 13 - Apr 14 May - Oct 14 Nov 14 - Apr 15 May 15 - Oct 15 Nov 15 - Apr 16 May - Oct 16 Nov 16 - Apr 17 May - Oct 17 Business optimism in UKCS compared to a year ago Business optimism in UKCS over next year 8 9

6 Business Optimism International In recent years survey respondents have typically been more optimistic about their international activities compared to activities in the UKCS, and although this is evident again in this latest survey, the gap is narrowing as firms become more confident about the domestic market. Once again we see positive net balances for both current optimism levels in international markets, and optimism over the next 12 months with both areas almost returning to longer term trend levels. A net balance of plus 51% (i.e. 56% minus 5%) are more confident about their current international activities and furthermore confidence looks set to improve again during the next year with the majority of contractor firms (57 %) in this latest survey reporting that confidence is set to improve for international operations, giving a net balance of 53% (57% - 4%). Figure 2: Contractors - business confidence in international markets Trends in business activity An overview of firms activities in production, exploration and decommissioning as well as expected trends on renewables and unconventional oil and gas extraction are explored in this section Net balance May - Sep 4 Sep 4 - Jan 5 Jan - May 5 Aug - Dec 5 Dec 5 - Mar 6 Apr - Aug 6 Sep - Dec 6 Dec 6 - Mar 7 May - Aug 7 Oct - Dec 8 Jun - Oct 9 Nov 9 - Mar Apr - Sep Oct - Mar 11 Apr - Nov 11 Nov 11 - Apr 12 May - Oct 12 Nov 12 - Mar 13 May - Oct 13 Nov 13 - Apr 14 May - Oct 14 Nov 14 - Apr 15 May 15 - Oct 15 Nov 15 - Apr 16 May - Oct 15 Nov 15 - Apr 16 May - Oct 16 Nov 16 - Apr 17 Business optimism elsewhere compared to a year ago Business optimism elsewhere over next year 11

7 TRENDS IN BUSINESS ACTIVITY TRENDS IN BUSINESS ACTIVITY Moving from confidence, to the specific activities of firms in this year - and over future periods - trends in activity are measured in two ways. First, firms are asked about the value of their organisation s work in the UKCS in the areas of production-related, decommissioning-related and exploration-related work. In this latest survey we see the negative trend in the value of production-related activity in the UKCS continue as we record another negative net balance (-4%), showing that more contractors reported a decline than an increase in activity in the last 12 months. However this is up from a balance of -17% recorded in the previous survey and from -63% a year ago. In the coming year contractors are forecasting an increase in the value of production-related work with a positive net balance of 28%. A positive net balance was recorded for the value of decommissioning-related activity (19%), this trend has been positive for the past few years and more contractors are expecting this to rise over the next 12 months (net balance of 34%). The downward trend in the value of exploration-related work has been easing over the past few surveys (net balance of -15%) however this was improved from the net balance of -31% in the previous survey. Again the outlook for 218 is improving with more contractors forecasting a rise in activity (net balance of 8%) over the next 12 months. Firms were then asked whether they are working at or above their optimum levels in the UKCS and second respondents are also asked about international activities. Figure 5 shows the percentage of contractors working at or above optimum levels over the period since the survey started in 24. The share of contractors working at, or above, optimum levels in their UKCS operations peaked at 79% in the spring of 213, and had been declining steadily over the last three years. One year ago, in the autumn 216 survey, only 12% of contractors were working at, or above optimum levels, the lowest figure since the survey began. The latest results published here indicate, however that this has improved over the last year, with 27% of contractors identifying that they are working at, or above, their optimum levels in the UKCS. in their overseas, rather than UKCS, portfolios over the last two years. This has been the case since 214 and although it has continued into this latest survey the proportion of firms working at or above optimum levels declined from 43% to 38%. Despite this It is now starting to look like spare capacity is beginning to be used, although not universally. CHAMBER VIEWPOINT decline however the trend still sits above the UKCS trend. In recent years global pressures have led to fewer firms reporting working at, or above, optimum levels in overseas markets. Traditionally contractors reported higher activity Figure 3 - Contractors - trends in UKCS activity in the last 12 months Figure 4 - Contractors scheduled / expected trends in UKCS activity over the next 12 months Figure 5: Percentage of contractors reporting working at or above optimum levels Net balance 2 - Net balance May - Oct 13 Nov 13 - Apr 14 May - Oct 14 Nov 14 - Apr 15 May 15 - Oct 15 Nov 15 - Apr 16 May - Oct 16 Nov 16 - Apr 17 May - Oct 17 May - Oct 13 Nov 13 - Apr 14 May - Oct 14 Nov 14 - Apr 15 May 15 - Oct 15 Nov 15 - Apr 16 May - Oct 16 Nov 16 - Apr 17 May - Oct 17 Production Decomissioning Exploration Production Decomissioning Exploration May - Sep 4 Sep 4 - Jan 5 Jan - May 5 Aug - Dec 5 Dec 5 - Mar 6 Apr - Aug 6 Sep - Dec 6 Dec 6 - Mar7 May - Aug 7 Oct 7 - Dec 8 Jun 8 - Oct 9 Nov 9 - Mar Apr - Sep Oct - Mar 11 Apr - Nov 11 Nov 11 - Apr 12 May - Oct 12 Nov 12 - Mar 13 May - Oct 13 Nov 13 - April 14 May - Oct 14 Nov 14 - April 15 May - Oct 15 Nov 15 - April 16 May - Oct 16 Nov 16- Apr 17 May - Oct 17 Contactors working at or above optimum levels on UKCS work Contactors working at or above optimum levels on overseas work 12 13

8 TRENDS IN BUSINESS ACTIVITY TRENDS IN BUSINESS ACTIVITY Decommissioning activity The survey questioned firms about trends in production, exploration and decommissioning, both in the UKCS and in international markets. We also enquired about firms expectations of involvement in specific activities over the medium term (defined in the survey as the next three to five years). The survey specifically asks firms about their activities in decommissioning, renewables and unconventional oil and gas extraction in the medium term. Figure 6 shows contractors expectations of greater involvement in decommissioning activity over the medium term. In the previous survey, a total of 81% reported that they were definitely or possibly likely to be more involved in decommissioning. In this most recent survey, this has risen slightly to 83%. We find: 46% (41% in the previous survey) reported they would possibly be more involved in decommissioning, this is the highest proportion since this question was added; The proportion recording either that decommissioning activity is not relevant for them or that they were unlikely to be involved or would not be involved declined further in this latest survey. The proportion was 21% in Survey 25 (Autumn 216), fell to 19% in the previous survey and eased further to 17% in this latest survey. As in the past few surveys, we ve asked firms about their expectations of becoming more involved in renewables activities in the medium term and our initial conclusions led us to believe that firms were adopting a wait and see approach. However, looking in more detail at the figures from recent years we found some of interesting results. Although there appears to have been little movement at the headline level, oil and gas contractors are increasingly making up their mind on renewables, with a recent large increase in the share of respondents expecting to be definitely involved in renewables in the medium term. This would suggest that there is a growing appetite within the sector to take advantages of the opportunities that could exist in a transition to a low carbon economy, through development of, for instance, new marine and offshore energy technologies this is particularly true of larger firms. In Survey 23, 46% of contractors reported they were definitely or possibly likely to become more involved in renewables, this rose to 63% in Survey 24 but declined to 53% in Survey 25, was relatively unchanged at 54% in Survey 26 and this latest survey also finds little movement at 54%. 37% (41% in the previous survey which was the highest proportion since this question was added in 2) reported they would definitely be more involved in decommissioning; Figure 6 - Contractors - involvement in decommissioning activity in the next three to five years Figure 7 - Contractors - Involvement in renewables in the next three to five years % 19% % 11% 6% 26% 14% 17% 17% 23% 19% 28% 24% 12% % 19% 6% 6% 3% 5% 4% 12% 15% 15% 16% 15% 6% % % 45% 7% 7% 12% 8% 31% 4% 34% 38% % 84% 64% 63% 55% 63% 65% 71% 79% 79% 85% 79% 81% 83% % 53% 54% 54% 2 46% 2 Apr - Sep Oct - Mar 11 Apr - Nov 11 Nov - Apr 12 May - Oct 12 Nov - Mar 13 May - Oct 13 May - Oct 14 Nov - Apr 15 May - Oct 15 Nov - Apr 16 May - Oct 16 Nov - Apr 17 May - Oct 17 May - Oct 15 Nov 15 - Apr 16 May - Oct 16 Nov 16 - Apr 17 May - Oct 17 Definitely / possibly Unlikely / no Not relevant Definitely / possibly Unlikely / no Not relevant 14 15

9 TRENDS IN BUSINESS ACTIVITY TRENDS IN BUSINESS ACTIVITY Employment change Our results for this latest survey find that 61% of contractors expect to be either definitely or possibly involved in UK unconventional oil and gas in the medium term compared to 69% in the previous survey. The percentage of firms stating that they would be unlikely to, or definitely wouldn t move into unconventional areas in the UK (or that this was not relevant) rose from 31% to 39% (figure 8). With respect to unconventional activities outside of the UK 61% of contractors expect that they could continue or increase their involvement in unconventional oil and gas activities (compared to 65% in the last survey) and the proportion stating that they would be unlikely to, or definitely wouldn t move into unconventional areas rose to (39%). In this survey, we find that 71% of operators/licensees don t see any likely involvement in unconventionals in the UK compared to 4% in the previous survey, however one third (64%) are considering the possibility of their organisation becoming involved in unconventional oil and gas activity elsewhere. The fall is perhaps unsurprising given recent announcements and the policy direction of the Scottish Government. In every autumn survey we focus on employment and labour market issues in the oil and gas sector. We have asked questions on labour market issues since the survey began in 24, which allows us to provide a unique picture of the pattern and dynamics of employment and labour market issues in the sector. These are particularly relevant at this point given the significant restructuring within firms in the industry and the impact on employment, earnings and job security in the sector. This survey examines actual and expected trends in employment and hours worked, and on actual and expected trends in total, permanent and contract staff. The survey seeks information on the current UK-based workforce for each firm, and so allows us to calculate an illustrative percentage change in total UK-based workforce for both periods (we calculate this as a weighted average of the mid-points of the recorded changes in workforce, with firms current employment numbers providing the appropriate weights). Our findings from Survey 26 showed that: be a 1.2% reduction in headcount, suggesting that the downward trend will ease. Contractors reported effectively a 1.3% reduction in headcount during the 12 months to October 217 which suggests that the rate of job reduction has eased somewhat over the past 6 months (firms reported a reduction of -6% in the March survey) though firms in the March survey had expected a rise in headcount. It now appears this did not materialise. Over the coming 12 months contractors anticipate increasing headcount by an average of 1.9% suggesting that contractors are still optimistic that the downward trend in employment will cease and that headcount will begin to rise. Care should be taken with this though as generally the contracting community has been a little less accurate with their forecasts in terms of volumes of staffing change than operators. 9 8 Figure 8 - Contractors - Involvement in unconventional activity in the UK in the next three to five years 3% 6% 4% 6% 3% 27% 24% 26% 26% 36% In the 12 months to March 217 operators reported an effective 2.5% reduction in employment and that the rate of job reduction slowed. Contractors reported a 6% reduction in headcount during the 12 months to March 217, suggesting that the rate of job reduction has remained fairly constant with previous periods Figure 9: Contractors - employment trends, 24 to expected % 7% 7% 69% 61% May - Oct 15 Nov 15 - Apr 16 May - Oct 16 Nov 16 - Apr 17 May - Oct 17 Definitely / possibly Unlikely / no Not relevant We repeated these questions in this survey and using an identical approach from last time, we find: In the 12 months to October 217 we find that operators reported an effective 6.2% reduction in employment compared to a reduction of 2.5% in the previous survey and to a reduction of 15% one year ago suggesting that the rate of job reduction may have accelerated over the last 6 months. Over the coming 12 months, operators anticipate that there will Net balance May - Sep 4 Sep 4 - Jan 5 Jan - May 5 Aug - Dec 5 Dec 5 - Mar 6 Apr - Aug 6 Sep - Dec 6 Dec 6 - Mar 7 May - Aug 7 Oct 7 - Dec 8 Jun- Oct 9 Nov 9 - Mar Apr - Dec Exp 218 Total employment Permanent staff Temporary and contract staff 16 17

10 TRENDS IN BUSINESS ACTIVITY Employment trends Less than a quarter (23%, compared to 68% in 216) of contractors reduced their employment in 217 while almost half (47%, compared to 24% in 216) held employment stable and 3% (compared to only 8% in 216) increased employment. The resulting positive net balance of 6% was in line with expectations from the previous autumn survey. UK based employment levels remained, on balance, unchanged with 36% of licensees and operators reporting both increasing and reducing employment in the last 12 months. Contractors on balance increased permanent staff (a balance of +1%) but continued to report a decline in contract staff (a balance of -1%) in this period however movement was at the margins as for each trend around half of firms reported no change. With regards to expectations of employment we find a continued positive outlook, during 218 as a net balance of contractors 36% expect a rise in total employment; with a net balance of 35% forecasting a rise in permanent staff and 16% forecasting a rise in contract staff. Operators/ licensees also display this positive outlook, as a net Pay The recent trends in (mean) pay increases between 24 and 216, shown in Figure a, correlate with the pattern of demand for staff over this period. It is not surprising therefore that with a number of firms continuing to reduce pay the average change in pay in the last year was minus 2.1% - however this is an improvement from the minus 4.5% for 216. balance of 31% and 23% respectively anticipate a rise in permanent and contract staff. The majority of contractors (87%) reported that the level of total hours worked hours for UK-based employment in their company was at or above planned levels and 95% expect to be working at or above planned levels in 218. With capacity in firms slowly reducing it now looks as though on aggregate net employment is levelling off. However, the outlook appears to remain variable on a company by company basis. CHAMBER VIEWPOINT This survey finds that the average (mean) change in pay in the last 12 months for contractors and operators/licensees were -2.5% and -.4% respectively. A number of firms reduced pay in the last 12 months, and Figure b shows the comparison between the pay changes seen in 214 (Survey 21), 215 (Survey 23), in 216 (Survey 25) and this latest survey Figure b: Contractors - average percentage change in pay, Reduced by more than % Reduced by more than 5%, but less than % Reduced by between and 5% Zero change TRENDS IN BUSINESS ACTIVITY Increased by between and 5% Increased by more than 5%, but less than % Increased by more than % Survey 21 (214) Survey 23 (215) Survey 25 (216) Survey 27 (217) Figure a: Operators and contractors - average annual pay change The proportion of firms reporting that they had reduced salaries fell during 217; in the previous survey 43% of firms reported reducing salaries whereas in this latest survey this fell to 25%. Also the proportion of firms reporting that they had increased pay during this last survey period increased slightly, rising from 19% of firms to 29%. Firms were asked if they had made any substantial changes to terms and conditions of employment and in this latest survey 31% of firms, compared to 4% in the 216 survey, said that they had. Some reported reducing salaries and/or pension contributions. Others reported reducing or freezing bonuses and allowances. A number of firms noted reducing hours or introducing more flexible hours. These findings are in line with firms stating that the main reason for recent pay/benefit changes is a need to reduce costs (61%). However this has eased since the previous survey where 72% gave the need to reduce costs as the main driver. A number of firms reported that they are improving wages/ benefits due to the need to retain core staffs this is up from 24% in 216 to 43%. Firms citing inflationary pressures/cost of living in the local economy as the main reason for increasing pay has been increasing over the past two years, in % cited inflation as the main reason and although this eased to 11% in 215 it has now risen to 2% (figure 11). Contractors Operators 18 19

11 TRENDS IN BUSINESS ACTIVITY Vacancies In Survey 21 we added a question on vacancies, noting the number of current vacancies in firms UK activities. We find that the vacancy rate (i.e. vacancies per jobs) for operators/ licensees increased marginally during the last six months and stands at 1.4 compared to.25 in the previous survey. The vacancy rate for contractors rose from 1.9 to 2.7. Although these remain historically low and suggest limited prospects for hiring in the sector, the rise in the vacancy rate is consistent with the rising trends in total employment for operator/licensees and contractors. Furthermore both operators/licensees and contractors are forecasting an increase in the total number of employees. 9 Figure 11: All respondents - reasons for pay changes, 211 to 217 Recruitment, retention and skills shortages Recruitment challenges had diminished sharply in the last few years, with firms noting that recent changes in the labour market had made it easier to recruit, particularly for highly skilled roles. Although recruitment problems remain marginal, challenges within the labour market and for different staffing roles have increased since the previous survey Need to retain core staff Shortage of key skills Inflationary pressures/cost of living in the local economy Need to reduce costs The costs of regulation changes 2 21

12 RECRUITMENT, RETENTION AND SKILLS SHORTAGES RECRUITMENT, RETENTION AND SKILLS SHORTAGES Recruitment challenges had diminished sharply in the last few years, with firms noting that recent changes in the labour market had made it easier to recruit, particularly for highly skilled roles. Although recruitment problems remain marginal, challenges within the labour market and for different staffing roles have increased since the previous survey. Survey 27 found that recruitment difficulties had increased slightly over the last 12 months, 13% of contractors compared to % in the previous survey reported difficulties in recruiting managerial and professional staff. Similarly contractors reporting difficulties in recruiting technical staff rose from 9% to 18%; there was a rise from 3% to 8% of contractors encountering difficulties attracting suitable clerical/ administrative staff and a rise from 8% to 17% in the recruitment problems of skilled trade staff. In survey 25 (undertaken in autumn 216) we noted the sharp increase in the share of firms reporting losing staff as individuals leave the industry (43% of all firms up from 31% in the 215 survey and from 19% in the 214 survey) a number of firms predicted future recruitment problems with talented and qualified individuals leaving the industry altogether and would perhaps be unwilling to return. In this current survey the proportion of firms reporting staff leaving the industry remained high but eased marginally to 38%. Since 26, the autumn survey has explored the reasons for firms losing staff. This is important for both short-term capacity, and longer- term sustainability. The reasons for staff loss among contractors are given in Figure 13a and Figure 13b. We earlier note the easing, though still high share of firms losing staff who left the industry (38% of all firms down from 43% in the 215). The second most cited reason given was again staff retirement; this is reported by 28% of firms and is largely unchanged from last year, suggesting the demographics still have the potential to be a significant challenge in the years ahead. Figure 12a: Operators/licensees - percentages reporting difficulties in recruiting staff, by occupation, 24 to 217 Figure 13a: Contractors: reasons for loss of core staff, 26 to Managerial & professional staff Clerical/admin Technical & skilled trades Retirement Leaving to work in renewables sector Becoming self-employed Figure 12b: Contractors - percentages reporting difficulties in recruiting staff, by occupation, 24 to 217 Figure 13b: Contractors: reasons for loss of core staff, 26 to Managerial & professional staff Technician & Skilled trades Clerical/admin Technical Joining other oil related firms in area Moving within company to other oil regions Leaving to work in other oil regions Leaving the industry

13 CURRENT INDUSTRY CHALLENGES Current industry challenges In this survey, we were particularly keen to find out firms perspectives on a number of issues: firstly, the impact of Brexit on talent attraction within the sector, secondly, if businesses have undertaken certain transformational changes, thirdly to seek the views of firms as to when they think the current downturn will bottom-out and finally to ascertain where firms expect to be by the start of 219. In this survey, we were particularly keen to find out firms perspectives on a number of issues: firstly, the impact of Brexit on talent attraction within the sector, secondly, if businesses have undertaken certain transformational changes, thirdly to seek the views of firms as to when they think the current downturn will bottom-out and finally to ascertain where firms expect to be by the start of 219. Firms were asked to assess the impact of Brexit on talent attraction within the sector, so far, this has been marginal. In the autumn 216 survey 22% of firms reported that Brexit would have an impact though more than half (54%) anticipate no impact. In this current survey the percentage of firms reporting that Brexit will impact on talent attraction rose to 33% although almost half (47%) still predict that it will have no impact. Firms were split on the details of any impact that Brexit will have on talent attraction within the sector, although the majority of firms are not overly concerned. Some are concerned with the potential smaller pool of workers that will be available with comments such as We have several European staff, I expect it to be more difficult to recruit from Europe in future and Other EU nationals will be less willing to make themselves available for work in the UK, due to the ongoing uncertainties. However more firms maintain there either is an ample local pool of labour available or that the oil and gas sector attracts workers globally. Comments on this issue include: Oil & gas is a global industry which allows for movement of people, reference Aberdeen as an international centre for skills and excellence and how UK personnel and companies influence and work around the world. Brexit doesn t change this!. A number of firms also imply that the industry has more pressing issues than Brexit with the industry not currently being seen as an attractive one to work in with more attractive options elsewhere, with less uncertainty and that Talent attraction is impacted more by the image of a declining sector and climate change mitigation perspectives of new graduates. Firms were then asked if their business had undertaken a transformational change in the past six months. More than half of firms (54%) reported having changed the overall structure of their organisation, slightly more than a quarter of companies have implemented process change or started applying new technologies (28% and 27% respectively) while only 6% indicated that they had introduced automation/robots. 24 Looking further into the future, a question was asked regarding what percentage of their business activities firms expect will be within oil and gas sector by 225. We already ask firms about what percentage of their business is in currently in the oil and gas sector and at this time firms report that an average of 82% of their business falls within this sector however by 225 firms expect that only 72% of their activities will be in the oil and gas sector. This is interesting and doesn t suggest transformation of the supply chain sector. Firms were asked to comment on the morale in their company, the majority of the comments were positive and optimistic, with morale improving for the majority. Some positive comments from businesses are detailed below. Concerns about Brexit labour force impacts are not universal but have marginally increased in the last 12 months. CHAMBER VIEWPOINT Some green shoot so very slightly positive at this stage, looking forward to a further pick up in business in 218. Almost miraculously good, especially in view of the prevailing market conditions of the past three years and the associated consequential impact on employees. Generally good. Certainly better than in 216. Some firms were less optimistic with one firm declaring The light at the end of the tunnel is getting brighter!. A number of firms, however, reported low morale for a variety of reasons and the main cause appearing to arise from concerns for staff and the uncertainty surrounding employment with one firm stating that staff are concerned about job security and what will happen in future. Another firm pointed out that staff are very busy wearing different hats as we strive for efficiency and effectiveness as we work with a core team with a global but reduced customer base. Another company concerned with staff conditions noted that moral was awful, working reduced hours, fighting for every scrap of work and no indication of any change in the foreseeable future. One company noted that disengagement is a 25

14 CURRENT INDUSTRY CHALLENGES concern - continual restructuring over a 24 month period has had a big impact. Loyalty when the situation improves will be a concern. Respondents were asked to give their predictions as to when the sector will reach the bottom of its current cycle and 6% felt that it already had (compared to 52% in the spring 217 survey and to only 29% back in the autumn of 216). A further 24% forecast that this will happen within the next 12 months and 11% anticipate that it will happen within 1-2 years. Only 6% felt that it would take longer. 8 7 Recent discussions and events with industry experts hosted by the Chamber and its partners have highlighted the importance of technological advance and adoption. It will be important to increase the percentages in this area moving forward to retain UK competitive advantage. CHAMBER VIEWPOINT Figure 14: Firms predictions of when the sector will reach the bottom of its current cycle Appendix The Oil and Gas Survey is conducted by the Aberdeen and Grampian Chamber of Commerce and the results analysed by Strathclyde University s Fraser of Allander Institute. This survey was conducted in September/ October 217, and the report was published in November 217. Methodology The Aberdeen & Grampian Chamber of Commerce Oil and Gas Survey seeks evidence of changing trends, and uses net balances as the principal survey statistic. Most questions of this nature ask the respondent to indicate whether the trend over the past four months and expected trend over the next 12 months is either up, level or down. The net balance for such survey questions is defined as the number of up responses minus the number of down responses to each survey question. Hence a positive net balance indicates a rising trend, and a negative net balance a declining trend. Generally the net balance can be expected to reflect the direction of change of the variable it purports to measure. Thus, for example, a positive net balance with respect to orders indicates that orders are rising. So typically the balance statistics are assessed by comparing them with growth rates, not levels of official data series [Treasury Bulletin Vol. 4 no. 2 Summer 1993]. 95 companies responded to the survey, representing a response rate of 11% of companies contacted. 6 Contacts 5 Prof. Graeme Roy Director The Fraser of Allander Institute University of Strathclyde T E graeme.roy@strath.ac.uk James Bream Research & policy director Aberdeen & Grampian Chamber of Commerce T E james.bream@agcc.co.uk Moray Barber Partner KPMG T E moray.barber@kpmg.co.uk 4 3 6% 36% 2 29% 52% 26% 24% 25% 13% 11% % 9% 6% It already has Within the next 12 months Within the next 1-2 years In more than 2 years Firms were also asked about the position of their own business. By 1 January % of firms (compared to 42% who expected to be growing by 1 January 218 in the last survey) expect to be growing and 36% expect to be restructured and fit for the future. Only 7% (compared to 15% in the previous survey) expect to be restructured but unsure of the future and none now expect to be declining. May - Oct 16 Nov 16 - Apr 17 May - Oct 17 About Aberdeen & Grampian Chamber of Commerce research team Have you got a business question? Well the team at the Chamber can help you answer it. Here at the Chamber of Commerce, our research team can support your business in a number of ways. We offer a bespoke approach which can be tailored to your individual organisation and objectives. We are currently delivering work for a number of members and over the last three years have completed over commissions. We are here to help you and would be delighted to see if we can help solve your business challenges

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