They think its oil over!
The last few months have led some to question the long term future of certain career paths in the Oil & Gas sector. What many don’t know is that the North Sea basin is one of the most expensive places to extract crude oil in the world. Partly due to the technical challenges of extracting, and partly due to the cost of the very highly skilled and trained labour force. All this was sustainable with a high barrel price, but the drops in price and in production have led to many fields becoming unprofitable. Some operators are even selling fields in the hope of better returns from other sites globally. All of which is bad news for Scotland’s hard hit Oil & Gas industry.
After trading at around $120 a barrel just 18 months ago, the oil price has now tumbled dramatically to its lowest level in 12 years (it dropped to just over $28 a barrel on January 20th). Of course the oil price shall rise again; the only unanswered question is when? One recent report suggested that 96% of senior executives believe the oil and gas industry will recover to “peak” levels of profitability, with one-quarter of them expecting it to happen within three years. Many of our clients cite a barrel price of $60 as the magic number to trigger positive growth.
As consumers, we see the immediate impact of the falling oil barrel price at the petrol station when we fill up, and it is obviously good news for drivers in the short term, but it helps no one in the long run. The drop in price leads directly to a rise in operating costs, a fall in profits and a program of cost reduction. Or to put it simply, job losses.
Some reports claim that over 5,500 people have been directly impacted by the slump, and many of these would be considered to be high earners. With so many high earners entering the employment market we have seen the balance of power shift to employers, where we had a sellers’ market 2 years ago, it is well and truly a buyers’ market now.
As a result, competition becomes fiercer, and salary levels reduce as the need to work overrides previous monetary requirements. Another affect is that with so many high earners being directly affected, there will be less spending, which means less contribution to the broader economy, more relocating for work meaning a possible drop in house prices. So whilst we delight in a lower pump price, we would perhaps all be better off if we had to pay a little more.
Having said all that, amidst the gloom, there are some who are doing rather well from the downturn. One area of growth is in the field of asset management and integrity. Many firms are reluctant or unable to spend money on new plant & equipment; they have invested more in maintaining and prolonging the life of their existing asset base. We have seen an increase in the demand for experienced field service personnel, asset integrity professionals and maintenance professionals. For those considering a change in direction, they could do worse than looking in that direction.
So is it oil over? Not quite. It’s essentially a waiting game– a case of sitting tight and waiting patiently for the price to climb back up to where it needs to be. The jobs will then gradually return, but we should hope that when they do return, that we have learned the lessons from the last few years and adopt a more conservative approach to growth.
Written by: Colin McKee, Director