It’s Not Oil That Bad

Amidst all the negativity of the oil crisis, there are beacons of hope. British oil and gas companies expect to create thousands of jobs over the next two years despite the dramatic slide in oil prices, according to the fourth Bank of Scotland report.

Although the report found that 39% of the respondents felt that price falls had affected investment, 8000 roles are set to be created, after net job gains and losses were collated. The figure of 8000 is roughly 2000 fewer than the number of jobs created by the industry over the last couple of years, but in fairness, that’s not the worst return given the current economic climate.

The findings have been important to allay fears that the current oil price slump was destined to create a negative spiral of job redundancies. It now appears that media reports of 35000 jobs in the UK oil and gas industry being cut were a classic example of hyperbole.

Perhaps more positively, the economic climate we are presiding in has not deterred high-flying oil and gas firms from growing. The Bank of Scotland report stated that 92 out of the 101 firms surveyed said they intended to grow, marking a 69% from a year ago. Coupled with the fact that most of these firms are expected to increase staff numbers in the next two years, it appears the British oil and gas industry is weathering the storm nicely.

As in any walk of life, you’ve got to take the rough with the smooth. The downside of the fall in all prices has resulted in 24% of companies expressing an interest in mergers and acquisitions; a move that reflects the uncertain nature of the industry, suggesting firms don’t have full confidence in market trends. One thing that does do, however, is keep Harvey Specter in a job – after all, he is the best closer in town.

The corollary to this can be seen by the 90% of the firms surveyed showing an interest in international expansion – a significant rise from 64% last year. This is particularly the case for North Sea firms, because it represents an opportunity to diversify risk. It’s a bit like what Brendan Rodgers had tried to do following Suarez’s acrimonious departure: invest across a broad range of assets to create strength in depth. Unlike Rodgers, these firms will endeavour to do better, and they will, because Rickie Lambert won’t feature in their plans.

Sticking with the topic of diversification, a consequence of the falling oil prices is that it has prompted companies to invest into areas such as onshore shale gas and renewable energy; these opportunities have doubled since last year. Falling oil prices have served to increase the cost of oil production. In February, Oil and Gas UK, the industry body, said the sector invested £5.3bn more than it earned in sales during 2014 in a bid to combat rising costs. Uh oh.

What has all this shown? For starters, the oil and gas industry is not a lame duck; it is a resilient industry that is carefully managing its future prospects in spite of the adverse economic conditions before them. Oil’s well that ends well.

 

By Kamran Khan

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