Oil and gas firms in the UK are on track to cut £2billion from their cost bases as the industry grapples with low global commodity prices, new research has revealed.
The cuts have resulted in the loss of 65,000 jobs in the UK continental shelf since the price of a barrel of oil peaked at $110 in 2014, according to Oil & Gas UK’s latest annual Economic Report.
The jobs figure represents a 15% cut in jobs across the supply chain, including direct, indirect and “induced” jobs which include those that are supported by oil and gas income.
Deirdre Michie, the chief executive of Oil & Gas UK said the industry had “turned a corner” in its efforts to reduce its cost base.
The report also revealed that the offshore trade body expects oil and gas production to reach a 15 year high this year following four years of “record” investment.
But as operators bring their costs in line with the current oil price, O&GUK has predicted capital investment (capex) in the UKCS is expected to reduce between £2billion to £4billion each year for the next three years. Last year investment in the North Sea reached a high water mark of £14.8 billion, the highest on record for the fourth successive year.
O&GUK expects this to fall sharply this year to between £10-11 billion.
The organisation bases its figures on the widely reported 5,500 direct North Sea jobs that have estimated to have been lost in recent months.
Ms Michie said: “We are definitely going through challenging times at the moment and the stats are testament to that. Difficult decisions are having to be made and people are experiencing that at a very personal level.
“However the economic report also speaks to the fact that a corner is being turned. We are seeing production improving, we are seeing costs going down. This is a result of the hard work the industry has been putting into improving cost efficiency. We are moving forward in a positive way, recognising it will be still be difficult as we go forward.”
Ms Michie said she expects the industry to continue its focus on improving efficiency and reducing costs well into 2016, when “we are seeing ourselves getting back to the levels we need to be to be a sustainable industry”.
But she added that while initial efforts had been aimed at reducing jobs and forcing suppliers to reduce costs, the industry was now looking at other strategies to complete the work.
“To begin with costs were coming through in job losses and in rate reductions, but also we are seeing sustained efficiencies being put in place by the industry,” she said.
“We are coming together as an industry to see how we can work together much more co-operatively. We have looked at other industries like the automotive industry. The learnings there are clear, that as companies improve their own performance, when they come together to work co-operatively that is when you see an industry go through a transformation.”