More than 1,000 North Sea contractors will see their pay cut by an average of 10% as oil companies feel the impact of lower crude prices.
The wage reductions affect only one oil service business, Wood Group Engineering (North Sea), but its rivals could follow suit as their oil company clients seek to reduce costs.
A Wood Group spokes-woman confirmed to the Press and Journal that pay cuts were on the way on March 1 for the contractors – both self-employed workers and agency workers – at the engineering unit.
She said: “Wood Group Engineering (North Sea) continually reviews contractor rates and, over the last three to four years, market forces led to significant increases in contractor rates to the point where current levels are unsustainable.”
Those affected work onshore and most of them are in Aberdeen and Glasgow.
There will be no impact on the salaries of Wood staff.
Wood chairman Sir Ian Wood said about the pay cut: “It is regrettable but an understandable reaction at a time when this (the North Sea) is such a heavy cost production area. We do not want to stop production and have to look at costs very carefully. We are going to have to responsibly and professionally react to what is a difficult situation, which we believe is short-term.”
The company spokeswoman declined to comment further but an industry source said many of the self-employed contractors were paid between £70,000 and £120,000 a year and had enjoyed total pay increases of about 40% during the last three to four years.
The source added: “Their pay rates went through the roof when the price of crude was rocketing and oil companies were desperate to maximise production but times have changed.
“With the price of crude having fallen so far from its peaks of last summer, the oil companies are looking at all their costs.
“Contractors’ pay rates are an obvious area to target.”
Among the other large North Sea oil service firms are PSN and AMEC.
Bob Keiller, chief executive of Aberdeen-based PSN, said: “We are looking at all ways to help our customers reduce costs.”
A spokesman for AMEC said: “We are continuing to monitor the market, as we would normally do.”
Jobs at some oil and gas industry companies in the north-east currently have a question mark against them.
It was unclear yesterday whether the Wood Group will still be moving its headquarters to a new site in the city.
Plans to shift from Greenwell Road, East Tullos, to £60million offices in the city centre were originally announced in 2007.
But the Wood Group said yesterday that developer Miller Cromdale was unable to proceed with the development, which Wood was to have leased.
The Wood Group spokes-woman said: “We are clearly disappointed but now need to take time to reassess our options.”