I work, at least until very recently, in the Oil & Gas sector in Aberdeen. I do have something in the way of a grapevine, so I thought I’d like to share what I’m hearing. Take everything I say with a pinch of salt. It’s only my perspective as I see it.
Financial market consensus seems to be that oil prices have bottomed out, and we can see recovery to more reasonable levels. I’m not sure what everyone’s expecting: $100 a barrel, maybe??
I’m still hearing that oil and gas service companies are STILL retrenching, though. Producers just seem to be cutting costs to the bone. Personally, I think a swathe of junior producers aren’t going to make it. They’ll generally have the more marginal fields in which more investment has to be made. Potentially you can make a lot of dough on some of those AIM companies if oil recovers. The operative word is “if”. High risk, high reward. Personally, I think the risk doesn’t justify the reward. That’s just my assessment of the situation, though.
At the very least, I think producers will adopt a “wait and see” approach. It seems that the oil services companies are seeing the problems as more than just a temporary blip, and are reducing capacity accordingly. Oil & Gas tends to be something a schizophrenic industry, much like the stock market. It’s very much boom and bust. I don’t think companies like to reduce capacity casually, though. There’s a cost and an upset involved in that, not to mention effort in ramping up if demand takes off again.
Now’s my time to vent my concern about the attitude of the SNP as being unfit to govern the nation. Last year, when oil prices were high, that industry was seen as a cash machine that disgorges its bounty to all passers-by. Not so any more. Here’s what Jim Sillars’ said (http://is.gd/IqA0St):
BP, in an independent Scotland, will need to learn the meaning of nationalisation, in part or in whole, as it has in other countries who have not been as soft as we have forced to be. If it wants into the ‘monster fields’ in the areas west of Shetland, it will have to learn to bend the knee to a greater power – us, the sovereign people of Scotland. We will be the masters of the oil fields, not BP or any other of the majors. If Bob Dudley thinks this is mere rhetoric, just let him wait. It is sovereign power that counts. We will have it, he will not.
The sheer arrogance of that statement beggars belief. Given the change in events we’ve seen, I don’t see anyone bending at the knee. If anything, it looks like they’ve got it the wrong way around as to who has to bend to whom.
Alex Salmond has also expressed a wish to repudiate Scotland’s share of the national debt (http://is.gd/6QQyag). Again, this is sheer arrogance. Not a great idea to signal to the credit markets that you’re not going to pay your debts because you don’t fancy it. One word: Greece.
Anyway, that’s my spleen vented.
I really can’t emphasise enough that theses are just my opinions. I simply don’t know how things are going to pan out in the long run.
Take care out there.
Update 20-Jun-2015: I thought I’d highlight another problem with the Oil & Gas industry in Aberdeen. There is increasing environmental regulation coming from the EU, particularly in regard to decommissioning. This is very much a new field, with a new market. Potential service providers do, of course, see this as an addressable market. Regulation seems to be geared towards turning a site to its pristine state, with possible small exceptions.
An example of an exception might be to leave trunk pipelines in place, in case they need to be used in future. It is also suggested that some platform foundations might be left in place, as the risks outweigh their removal. Other than that, it’s basically all got to go. Decommissioning platforms carries risk of environmental contamination. The industry hasn’t figured out best practises yet. Options include moving the whole platform onshore for decontamination, decontaminating in situ, and even both at the same time. No-one really knows, and it’s something that industry will only learn through experience.
All this was never a problem when the fields were build decades ago. We stand at an unusual time in history, where so many factors are coming into play at once. One is, obviously, the oil price, which is affecting the assessment of the economic viability of a field. Also, many of the platforms are old, are likely to be at the end of their economic life in any event, so operators are facing huge expenses. Lastly, there is an increasing appreciation environmental regulations, and of having to factor in decommissioning costs at the commissioning stage. This obviously affects the economic viablity of projects.