Offshore oil and gas activity in mature provinces such as the North Sea was said yesterday to be more at risk than deepwater areas such as west Africa in the current economic downturn.
A Subsea UK study, supported by Scottish Enterprise and unveiled on the first day of the Offshore Technology Conference in Houston, in America, reveals continued uncertainty in the oil and gas sector this year and next.
Alistair Birnie, chief executive of industry body Subsea UK, said: “The outlook for 2009 has become more uncertain as announcements of capital expenditure decreases filter through from exploration and production companies globally.
“Expectations are that offshore activity will be adversely affected, particularly in regions where production is mature and investment costs are high.
“The deepwater markets, however, seem to be more insulated from what may be a short to medium-term reduction in upstream investment as projects in these areas are often larger and planned on longer-term, more conservative oil price assumptions.”
In tighter credit markets, there is evidence that oil and gas companies around the world are beginning to delay the launch of new projects and reschedule the start of existing ones.
Mr Birnie said: “This report confirms what we have been hearing anecdotally.
“While the outlook in the long term remains positive for oil and gas and subsea in particular, current events are adversely affecting the market. There is growing uncertainty among subsea companies which is knocking confidence and therefore investment and activity levels.
“This volatile market is compounded by the banks’ lack of appetite for investing. There is increasing anxiety among Subsea UK members as to what extent the sector will be challenged in the current climate.”
Mr Birnie said that, overall, the subsea oil and gas sector seemed to be handling the downturn well so far, with few layoffs or business failures.
He added: “The current order backlog levels are cushioning many in the short term. But, with the banks behaving erratically, it remains uncertain as to whether companies can rely on any level of normal overdraft facilities which is a potential threat to otherwise healthy businesses of all sizes.
“It is important that firms understand what is happening in the market and that they adopt a strategy that will avoid over-reacting and reliance on banks while not missing out on business that would still be viable.”
The study was compiled by energy consultant Douglas-Westwood using company reports and broker reports to assess earnings per share for oil and gas companies.
Mr Birnie said: “The analyst estimates provide insightful indications as to what may occur in the sector.
“The drilling markets seem to be holding up well and provide a strong indicator of future market buoyancy, activity and eventual recovery.
“While activity levels have yet to actually contract, the expectation is that they will in quarters three and four of 2009. As activity lessens, pricing will come under increased pressure and cost reduction and efficiency initiatives will be implemented which will impact the entire supply chain.
“It is good news for our 200 members, though, that the most attractive sector within the upstream industry remains the highly prospective deepwater sector which is increasingly reliant on the use of subsea infrastructure, hardware and service provision.”
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