Optimism with reservation
Cautious optimism continues in the sector with an upward movement and relative stability in the crude oil price; and this is expected to continue throughout 2020. A shortage of experienced personnel is starting to appear, and this will impact both salaries in the sector and delivery of services. Added to that (more later) the IR35 impact is a hot topic in the industry just now.
Recent reports suggest that collaboration has taken a small backward step between UK oil and gas companies. 2020 must see organisations working together to change culture, reduce costs, enhance productivity and develop new technologies. These innovations will allow many businesses to access tax reliefs (R&D tax credits, Patent box) and this will continue to assist further investment in research and development.
Although there may be a level of optimism following Sajid Javid’s recent promised review of IR35, companies (the engager or end user) must continue to prepare for the new regime being introduced for large businesses from April 2020. We are seeing increased momentum on HMRC enquiries into IR35 and expect this to continue.
A move to smaller, niche operators continues to emerge, and production has increased on the previous years since the downturn. The supply chain continues to have challenges with working capital and profitability. The North Sea continues to tick over on its downward trend, and West of Shetland is developing albeit slowly. There is no question that those with a global footprint will fare better. As ever the spectre of cleaner energy is at the front of the agenda and the industry needs to consider ways, with support, to undertake the energy transition.
A conservative majority gives some certainty in terms of the political arena, with Brexit now confirmed and in sight. The oil and gas industry have welcomed the new UK government and is looking to commence discussions on a sector deal. An upward trend in the market and currency movements indicate positivity, albeit the Scottish political situation will inevitably result in some distraction in the years ahead.
Cameron Bruce, head of oil and gas at RSM