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    North Sea investment in focus as trend confirms internationalisation

    News // February 2, 2007

    The seventh Aberdeen and Grampian Chamber of Commerce oil and gas survey, sponsored by Deloitte and conducted by the Fraser of Allander Institute, reveals that 87 per cent of both operators and contractors are working at or above optimum levels, both domestically and internationally.

    Although short term prospects for the UK Continental Shelf (UKCS) still remain strong, the survey clearly charts the fact that both operators and contractors are now seeing growth opportunities in international markets with over 65 per cent of contractors reporting business expansion in new overseas markets. The survey draws on responses from oil and gas operators and contractors employing over 35,000 in the UK and 220,000 in the international oil sector.
     
    Geoff Runcie, Chamber Chief Executive explained: “The oil and gas surveys over the last two and a half years have shown an increasing trend towards both operators and contractors internationalising their operations. With 65 per cent of contractors developing new markets, this trend clearly continues. Whilst this is good news for Aberdeen City and Shire as it provides opportunities to export expertise and technology, we need continued investment at home in exploration levels and both our offshore and onshore infrastructure to ensure the longevity of our indigenous oil and gas industry." 
     
    “Additionally, 87 per cent of operators and contractors acknowledge working at or above optimum level, stretching physical, human and financial resources. Perhaps the most encouraging aspect is the number of respondents having gained new business outside their traditional areas of work."
     
    “We cannot stop major organisations internationalising their operations. The challenge is to make any decision to shift their emphasis from the UKCS less appealing by making continued investment in the region as attractive as possible. It is crucial that the UK Government recognises the supporting role it can play by introducing long term fiscal and legislative policies to protect the competitive position of the UKCS against the relative attractiveness of foreign market opportunities.”
     
    Summary of key survey findings:

    •         A sense of consolidation of previous increased activity coupled with continued but slower rates of growth expected over the next year.

    •         Rising trends in employment were reported by both operators and contractors and these upward trends are expected to continue through 2007 for a net of respondents. Over 40 per cent of contractors reported working above planned hours over the past four months and more than a quarter anticipated working above planned hours in 2007.

    •         Rising trends in the number of UKCS framework based agreements were reported by 34 per cent and rising trends in new contracts by 36 per cent of contractors.

    •         Between 2004 and 2006 the survey results suggest a declining emphasis on cost reduction, risk sharing and penalty clauses in contracts, and a trend towards longer agreements. Continued emphasis on safety and environmental issues was noted but with little change seen in the last three years.

    •         Increased opportunities in North and West Africa with new frontiers like Russia and Australia assuming greater importance
    Graeme Sheils, Oil & Gas Partner at Deloitte in Aberdeen says: "This is an extremely positive survey, the already high activity levels are continuing to increase, albeit at a slower rate. One of the key findings which is welcome and positive news for the whole supply chain is the changing attitude in contractual arrangements. Between 2004 and 2006 the trend is towards longer agreements between operators and contractors with less emphasis on cost reduction, risk sharing and penalty clauses. The move to more collaborative and partnering style relationships will impact positively down the supply chain and bodes well for the longer term. The strong order books and opportunities that exist are also resulting in a high level of M&A activity and volume of institutional money looking to invest in the sector is very encouraging.

    “As a note of caution, we must be on guard against complacency over cost. The UKCS is a high cost province and this is being exacerbated by the shortage of people and equipment forcing prices up. If we are to ensure a long-term future for the North Sea in the face of stiff international competition we must be cost-conscious and continue to develop new technology and ways of working to keep cost down.”

    David Frost, Director General of British Chambers of Commerce said: “The Oil and Gas sector is a shining example of how UK businesses are at the forefront of the global economy.  That so many are diversifying into emerging markets is an indicator of the high confidence levels of many firms. It is troubling however that short term taxation policies may reduce the attractiveness of further exploration work in the existing North Sea oil fields.  Easing the long term tax burden on those seeking to find new reserves will encourage continued investment in the North Sea.”

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