Hundreds of millions of pounds of oil and gas exploration and development activity in the North Sea will be shelved next year, the senior partner of PricewaterhouseCoopers in Aberdeen has warned.
Mark Higginson – who took over as top partner at the professional services firm in the Granite City after the retirement of Ken Murray earlier this year – said lower oil prices would result in more of the work being put on hold or cancelled, particularly in the second half of 2009.
He said oilfield activity was likely to continue strongly in the first half, however, as existing project work and commitments were completed.
Mr Higginson believes capital expenditure in the oil and gas industry will become more focused on maintaining production to maximise operating cash flow.
He said record oil prices in the first part of 2008 had led to a vibrant local economy but were highly unlikely to be repeated next year amid falling demand for oil although the impact had yet to be felt fully in Aberdeen. In an end-of-year economic outlook for 2009, Mr Higginson also said no one could have predicted a year ago the “unprecedented domino effect” that was to unfold during 2008 following the collapse of the sub-prime lending market in the US.
He added: “Banks have fallen, the pound has grown weaker, businesses – and even high-street institutions – have closed, and the UK and many other countries across the globe have entered recession.”
The Scottish economy, which weathered the economic crises of the 1980s and 1990s more readily than other parts of the UK, was more exposed to the current turmoil because of its dependency on financial services and banking, he said.
Mr Higginson believes business in the north-east will face liquidity issues in 2009 but also that many companies are well placed to survive the challenges ahead.
“Some big winners will emerge,” he said, adding that these would mostly be those with cash reserves, an appetite for carefully calculated risk and an eye for an opportunity.”
Mr Higginson expects north-east firms to show more caution on spending next year, along with a greater focus on working capital and debt management.
He said: “This will inevitably have an impact on jobs but unless there is a prolonged downturn, large redundancy programmes in the oilfield sector are unlikely.
“Outside oil and gas all other sectors will find 2009 tough, particularly construction, property development and retailing.”
Mr Higginson said Aberdeen fared better than most UK cities in 2008, mainly from the buoyancy of the oil and gas sector, but added: “We need to get our house in order now if we are to continue to buck the UK trend in the forthcoming recession.”