LONDON (Alliance News) - The UK North Sea is still struggling to deal with the downturn in the oil and gas market as the trade body for the offshore industry predicted 120,000 jobs will have been lost in the sector by the end of this year compared to peak levels in 2014.
The prediction for further job losses will not stir confidence in the region as it echoes similar sentiment as a report published by the Bank of Scotland earlier this month that said a third of UK oil and gas companies plan to make additional job cuts this year.
Oil & Gas UK, which represents the UK industry that is mainly based offshore in the North Sea, said Friday that new employment figures and analysis carried out by marketing services company Experian show there will be around 330,000 people in jobs supported directly or indirectly by the UK oil and gas sector by the end of the year compared to the peak in 2014 of 450,000.
The peak in job levels during 2014 came just before the downturn started in the middle of the year which resulted in Brent, named after Royal Dutch Shell PLC's field in the North Sea, falling from a high of USD116 per barrel in mid-2014 to a low of USD27 a barrel in January this year.
However, prices have rallied slightly since then and reached new yearly highs, trading at USD51 per barrel on Friday morning - but producers are still struggling and 2016 is still expected to be a tough year for the sector.
The Bank of Scotland report demonstrated the mentality and sentiment held by the sector at the moment, as it predicted around half of all UK oil and gas firms plan to cut costs this year, a third plan to make more job cuts and the amount of companies intending to expand their operations in the UK North Sea has dwindled.
The North Sea is particularly vulnerable to the fall in prices as it is one of the most mature basins in the world, making it one of the most expensive areas to operate globally, meaning companies have to cut costs and take more severe action compared to other regions in order to counter the downturn.
The efforts have been fruitful, as the average operating cost for a UK North Sea producer has fallen to USD17 per barrel in 2016 compared to USD30 in 2015.
However, with Scotland, specifically Aberdeen, being the central hub of the UK oil and gas market and the gateway to the North Sea, the country has felt the brunt of the impact and is having to take more severe action compared to the wider UK market.
The timing of the downturn runs parallel with the reported job losses, as only 370,000 people were employed within the sector at the end of 2015 - an 84,000 drop from 2014 - and although prices have started to rally this year, Oil & Gas UK expects another 40,000 people to lose their jobs this year.
"The industry has been spending more than it is earning since the oil price slump towards the end of 2014. This is not sustainable and companies have been faced with some very difficult decisions. To survive, the industry has had no choice but to improve its performance," said Deidre Michie, the chief executive of Oil & Gas UK.
"We cannot underestimate the impact the global downturn in the industry is having on the UK economy, nor the personal toll for those who have lost their jobs, and the effect on their families and colleagues," she added.
The Bank of Scotland report also rose the question concerning the impact of current job losses on the talent pool available to the UK North Sea and said the current market means a considerable chunk of young people no longer see the UK oil and gas market as a viable career option.
That is significant as that could cause a longer term problem as a lack of interest now could mean companies face a shortage in skilled staff in the future when oil prices may have rebounded and companies begin to recruit once again.
Oil & Gas UK is holding a conference with its members in Aberdeen next week to discuss how the sector can safeguard and protect the remaining 330,000 jobs.
Ultimately, however, the amount of jobs in the sector relies on the amount of investment that is being ploughed into the UK North Sea, and if investment falls then so will jobs.
Investment is key, and the UK North Sea is undergoing a major shift as companies are changing their focus and diversifying their operations in order to make money in the current market.
Decommissioning, for example, has become a huge topic for the UK oil and gas market, especially for the larger players that have sufficient cash to launch substantial new operations focused on dismantling and closing formerly producing platforms in the sea.
Although tens of billions of pounds is expected to be spent on decommissioning of UK North Sea platforms over the next decade, providing companies with a new potential revenue stream, it also demonstrates the level of platforms set to close as fears continue to grow about the future of what has previously been one of the most prolific producers of oil in the world market.
The Bank of Scotland report estimated GBP17.00 billion would be spent on decommissioning activities in the area over the next decade, but the Financial Times has also recently placed a GBP30.00 billion figure on decommissioning activities.
A benefit of decommissioning is that it is essential work that can not be avoided as companies are required to safely dismantle and close down operations safely, unlike exploration which is not essential. Exploration has been the worst affected area of activity in the UK North Sea as companies are simply not willing to spend vital funds on unessential work whilst prices are low.
"It is also important we consider what we can do in the immediate term to stimulate activity in support of exploration and development of existing small pools opportunities to help support the supply chain as it goes through these challenging times," said Michie.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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