Contract opportunities in the UK’s oil and gas sector look set to remain scarce in the immediate future, but contractor clients are encouraged to continue to engage with contractors in order to avoid a “brain drain” once oil prices begin to pick up again.
Whilst firms remain optimistic that the global market will see an upturn before the end of the year, contractors who are short on work may be able to supplement themselves by exploring decommissioning opportunities or by assisting with mergers between oil majors.
These are the conclusions drawn from two major reports into the oil and gas sector. Hays’ Oil and Gas Global Salary Guide 2016 highlights that contractors could soon capitalise on a shrinking talent pool, but encourages contractor clients to take measures to avoid skills shortages.
Meanwhile, Oil & Gas UK’s Activity Survey 2016 warns that a significant reduction in operating costs in the UK Continental Shelf (UKCS) is doing little to increase investment or contract opportunities.
Clients feeling the impact of reduced contractor use
In response to rising cost pressures, firms are taking further measures to reduce spend. The UKCS alone is expecting to reduce unit operating costs by 20% during 2016, with contractors likely to be amongst the casualties, as Oil & Gas UK notes:
“Intense global competition for capital and contraction in expenditure is leading to a major downturn in activity and consequent job losses across the whole sector.”
However, Hays warns that contractor clients need to be careful to ensure that they aren’t placing their future development at risk. Whilst economic stability (56%) has overtaken skills shortages as the number one industry concern for the first time in five years, a significant portion of respondents expect the shortfall in talent (22%) to be the main threat to development over the coming year.
Clients are already feeling the strain caused by headcount cuts. Notably, 89% of firms report that the reduction in manpower has negatively impacted productivity, whilst 90% claim it has led to an increase in workplace pressure.
For Hays, this suggests that clients may be preparing to add to their ranks during the latter half of the year, should oil prices begin to rise again. This is a suggestion that is supported by the fairly positive outlook held by clients, 53% of whom anticipate the sector will see an upturn over the next 6-12 months.
Industry “brain-drain” an increasing risk
However, it could be too little too late if the talent pool is dry by the time oil prices rebound. Almost a third (32%) of oil and gas workers who responded to the survey report to have recently been laid off or made redundant, whilst 93% of clients say they have been forced into slashing headcounts over the past year.
Of these out-of-work oil and gas workers, 72% claim to be exploring opportunities outside of the oil and gas sector. The impending dilution of the job market could be a positive indication that contractors who are willing to weather the storm will again see significant demand for their services. However, it also serves to reinforce concerns over an industry “brain-drain” over the coming years.
Contractor clients urged to plan ahead
In order to counteract the threat posed by skills shortages, contractor clients are being encouraged to implement a succession plan to help them attract and retain staff. The Hays report reads:
“A succession plan is a great way to attract candidates as well as bolster confidence with existing staff. Devising a succession plan does not have to be a costly or complex exercise and should be looked at as a key component to a long-term growth plan.”
Whilst keeping operations cost-effective and competitive is certainly the top priority for firms, the emphasis on retaining essential talent appears to be significantly understated. 36% of oil and gas workers looking to jump ship are doing so due to poor succession planning by firms. In comparison, only 17% of hiring managers say they intend to implement a succession plan over the coming 12 months.
Meanwhile, 18% of respondents believe the insufficient amount of new professionals entering the industry to be the key cause of skills shortages. However, as Hays notes, clients may start looking towards contractors as part of the solution:
“Employers are taking action by improving training and upskilling programmes or engaging short-term contract workers to help bridge the [skills] gap and alleviate workplace pressure.”
Mergers and decommissioning offer potential contract opportunities
There have been many high profile mergers and acquisitions and as companies continue to integrate with each other, further reductions in headcounts are expected – at least over the short-term.
Only 37% of companies plan to add staff over the next 12 months, whilst only 22% plan to engage more with contractors. However, Hays points out that short-term opportunities could arise for skilled contractors, as increasing amounts of firms require assistance with integrations.
“Employers could take advantage of the increase in available talent by engaging workers on short-term contracts, without adding to permanent headcount. Contract workers can supply specific skills or knowledge as and when required.”
For contractors looking for jobs immediately closer to home, Oil & Gas UK identifies decommissioning as a potential source of income. After 21 fields ceased production in 2015, a further 80 are expected to close by the end of the decade.
As a result, decommissioning expenditure in the North Sea is expected to rise from £1bn in 2015 to £1.5bn this coming year. By 2017 it should surpass £2bn, and could match capital expenditure by 2020, making it a perceivably increasingly prosperous market for contractors.
Contract rate reduction is in keeping with permanent salaries
Naturally, cost pressures have had a negative impact on contractor rates within the sector. The average global oil and gas salary has decreased by 1.4% from 2015’s average of $82,141, whilst contractor day-rates have fallen in line with this, recording a moderate reduction from 2015’s average rate of $525.
Part of this decline has been attributed to clients engaging less with more costly expat contractors, instead opting to use local contractors when specific skills or knowledge are required.
Although the decrease in rates is a fairly constant trend across most markets, Hays reports that there are still pockets for the industry. Notably, firms in Asia and the Middle East are still actively looking to source talent. As a result, wage pressures remain and salaries and rates are consistent with last year.
This may be of interest to contractors considering work outside of the North Sea, where opportunities are especially sparse. Oil & Gas UK notes that only five new fields were sanctioned in 2015, whilst less than £1bn of fresh capital is expected to be approved in 2016.
On a brighter note - a reflection of the sustained global optimism within the sector - almost three in five (59%) firms anticipate salaries and rates will increase over the course of the year, whilst a third (33%) expect rates to hold steady.