Over the past 3 months the share price of the Wood Group has fallen by 21.5%.
The recent announcement of the creation of a possible 150 new jobs on the back of winning a £500 million contract for BP may help stabilise this price slide.
But like all oil service companies their share price fate is dependent on the price of a barrel of oil. And the once powerful international oil industry appears to be impotent to influence prices one iota at present.
The current, alleged, standoff between OPEC (in effect Saudi Arabia reducing prices by over-producing) and the US (reliant on high prices to keep fracking production viable) in their battle for market share of production shows no sign of abating. Most analysts expect prices to continue to fall.
We used “alleged” above as coincidentally the countries most harmed by low oil prices are Russia and Iran whose economies are dependent on high oil prices. Are oil prices being manipulated to bring pressure to bear on Russia and Iran?
But under these circumstances it is no surprise the WGPSN is reducing its costs by slashing its payment to contractors by 10%.
The 1250 offshore and 60 onshore contractors affected will be used to such treatment. WGPSN had already reduced contractor pay by 10% in June based on the argument that their contractor reward had outstripped the pay of the company’s own staff; AMEC also reduced contractor pay by 10% in June.
Before we feel too sorry for these contractors it was reported in May 2014 that the average salaries for contractors across the industry was £79,488. When oil prices are rising contractors have the upper hand in negotiating terms; the reverse applies when prices are falling.
The WGPSN move will chime with the overwhelming sentiment across the entire industry to reduce costs in order to keep the North Sea industry a viable concern.
It is a high wage industry. Increasing efficiency and reducing costs is the order of the day and for the foreseeable future. From the contractors’ viewpoint they may ask why WGPSN is not spreading the pain by reducing all staff salaries by 10%.
If oil prices continue to fall then there is little doubt that salaries will follow suit.
Alex Russell is Professor of Petroleum Accounting at Aberdeen Business School and his co-author, Peter Strachan, is Professor of Energy Policy at Robert Gordon University