Contractors across all major contracting disciplines will benefit from a contract rich environment in the global oil and gas sector, according to a new report by oil and gas sector analyst GL Noble Denton.
Seismic Shifts: The outlook for the oil and gas industry in 2013 paints a picture of a global industry that remains relatively unaffected by the economic woes affecting many of the world’s trading blocs and economies.
However, the oil and gas sector is facing multiple challenges requiring flexible and innovative solutions; and this presents huge opportunities for contractors who can move swiftly to help oil and gas clients meet them.
GL Group executive board member Pekka Paasivaara explains: “Increasingly challenging operating environments mean companies face tighter margins, greater overheads, higher risks, more rigorous regulation and tougher contract terms in a sector that is fast approaching a skills meltdown.”
Skills shortages set to dominate the next decade of oil and gas
To take advantage of new opportunities developing in emerging oil and gas provinces, “about half (51%) of firms expect to increase their overall capital investment this year.” But, as the report highlights: “for those who are bumping up spending, a challenge still remains in finding the right people, skills and experience to deploy this.”
Always a central concern for oil and gas firms, for the first time in the report’s history, skills shortages have been cited by the report’s contributors as the number one barrier to growth in the year ahead.
“Cited by 54% of respondents, “this is sharply up on last year, where just 34% selected it, and an even steeper rise from its being a fifth-ranked worry in 2011,” note the report.
“The only exception was in Asia Pacific, where the industry is more worried about costs than skills shortages, in part owing to the region’s demographic advantage over Europe and North America.”
Increasingly challenging operating environments mean companies face tighter margins, greater overheads, higher risks, more rigorous regulation and tougher contract terms in a sector that is fast approaching a skills meltdown
Pekka Paasivaara, GL Noble Denton
This suggests that contractors may wish to focus contracts search efforts on Europe, the Middle East, Africa and the Americas during the year ahead.
Where will contractors be working in the future?
Exploration activity growth can be found in all major oil and gas provinces, including mature basins, which include the UK Continental Shelf (UKCS) and other North Sea territories. According to UK trade body Oil & Gas UK, new UKCS projects that will result in investment of £8bn are due to start in 2013.
Further afield, new discoveries in the Asia Pacific region and emerging provinces in Africa are set to attract investment during 2013, which will result in fresh contracts throughout the supply chain.
Oil and gas firms are looking to new territories to contribute to their 2013 growth targets. GL Noble Denton’s analysis shows that: “18% of companies expect to look to diversify exploration into new geographic regions as their main source of growth, second only to organic growth (31%).”
However, despite the region’s growth potential, the report warns that: “Respondents are more concerned about uncertainty in the Asia Pacific region, than elsewhere in the world.”
Contractors from multiple disciplines play a role in driving innovation
Oil and gas contractors with upstream exploration, offshore and engineering skills are not the only flexible workers likely to benefit from the oil and gas contract boom forecast for 2013.
Oil and gas clients are looking to research and innovation to overcome cost, compliance and skills challenges, as the report highlights: “Nearly four in ten (37%) [of survey respondents] expect to increase their spending in research and development (R&D), and innovation.”
Despite a willingness to invest, GL Noble Denton has found that firms in the sector are expected to find talent sourcing a barrier: “The industry’s skills shortage is a key drag on further exploitation of technology, even as innovation is being sought to help address the widening talent gap.
“As many respondents acknowledge, there are insufficient numbers of suitably qualified engineers and scientists coming through the talent pipeline as an ageing workforce retires.”
Contractors across the contracting sector, including in core disciplines such as IT, engineering and energy, and in more niche areas of science and technology, are in a position to offer oil and gas companies flexible solutions to their research and innovation skills shortages.
The impact of the Macondo well/Deepwater Horizon disaster
The fall-out from the Macondo well/Deepwater Horizon disaster continues to resonate throughout the oil and gas industry, and may have a mixed impact on contractors.
One of the longer-term impacts of the Macondo well disaster is that major oil and gas company clients are predicted to “consolidate their supply chains more intensively in 2013”, so they can “show that they have paid full attention to due-diligence issues when selecting suppliers”.
As Paul Shrieve, senior vice president for Technical Assurance at GL Noble Denton explains, this may reduce contractor opportunities in some areas: “Operating in high-risk environments has traditionally forced oil and gas majors to share the risk involved.
“But now these companies are consolidating their portfolios of technical advisors and suppliers, whittling down the hundreds of firms that were employed on an ad-hoc basis to a far smaller group of partners, typically operating under a master framework agreement.
“This means companies must become much more coordinated in the way they procure third parties, in order to protect their risk profiles,” adds Shrieve.
How the trend for consolidating supply chains will work given the acute skills shortages facing the industry remains to be seen. Individual contractors with highly sought-after skills and experience may be able to retain their independence because clients may have little option if they want access to expertise in short supply.
Yet, despite the impact of Macondo, contractor prospects across the oil and gas sector and its supply chain are looking very positive in 2013; and they may remain so for many years as new oil and gas exploration continues and new fields start production.