The UK oil and gas sector is planning further cost cutting to absorb the impact of lower oil prices, putting more jobs on the line.
Almost half (43 per cent) of UK oil and gas firms intend to cut costs, new research from the Bank of Scotland has today revealed.
Nearly a third (32 per cent) of businesses plan to cut more jobs this year as the oil price takes longer than expected to recover. The report found that for every six jobs lost in 2015, only one new job was created.
At the end of last week Brent crude, the global benchmark, fell 0.3 per cent to $49.90 per barrel, having broke through the $50 threshold earlier. West Texas Intermediate, the US benchmark, also slumped 0.3 per cent to $49.
The oil price remains well under half its peak of $114 per barrel in mid-2014.
The price of oil proved to be resilient to the lack of policy decision from oil cartel Opec earlier in the week. Opec failed to agree a formal output ceiling in Vienna sending oil marginally lower, however sentiment brightened as the cartel's de facto leader Saudi Arabia promised not to flood already oversupplied oil markets.
Tomorrow oil giant Shell is expected to give an update on its acquisition of BG Group that went ahead despite some big investors questioning the wisdom of the tie-up due to the low oil price.
There have been reports that Shell could announce a fresh round of job cuts at its capital markets day in London.
The Bank of Scotland research found that Scottish firms have been worst hit by the slump in oil prices, with 57 per cent recording that their business has been severely or quite badly affected – against a UK-wide average of 41 per cent.
Some smaller and mid-sized companies are however intending to grow their operations in the North Sea, with over a fifth (22 per cent) of businesses looking to expand. No large companies were found to be planning expansion in the region though BP recently announced it has acquired an additional 16 per cent interest in the Culzean development in the UK Central North Sea from JX Nippon.
Read more: Shell could sell some North Sea assets
A quarter of the firms (25%) surveyed said they had used to the downturn to diversify into new sectors and invest in new technology – raising hopes the industry will be more resilient to oil price swings in the future.
Stuart White, commercial banking regional director at Bank of Scotland, said:
With oil prices currently hovering around the $50 mark there is hope that prices have bottomed out and have begun to slowly and modestly recover. Many businesses however, undoubtedly face more difficult decisions on cost savings, jobs and investment.
While the blow from depressed oil prices has been severe for many businesses and individuals impacted by job losses, the sector is proving itself to be among one of the most resilient industries in the UK.
Just over half (51 per cent) of survey respondents said they had been forced to make redundancies since the downturn in the oil price in mid-2014.
Firms in Scotland felt the brunt of the losses most severely with six in ten (63 per cent) businesses reducing their workforce – in what's been called an industry "brain drain". This compares to an average of 42 per cent across firms surveyed in England and Wales.
The outlook for companies isn't particularly encouraging. When asked when they expect that oil prices to recover, a third of respondents (33 per cent) stated that it would be 2018 before the price of Brent crude oil reaches $75-80 per barrel.
Four in ten (38 per cent) believed the rise would happen no sooner than 2020. Large companies were especially conservative – six in 10 (58 per cent) reckoned on 2020, and five per cent on 2022 or later.