The year 2015 has been extremely tough for the oil and gas service and supply industry, its companies and people.
With no sign of any improvement in trading conditions the service sector must batten down the hatches for an even bumpier ride in 2016.
The looming reality for a number of oil service companies is 2016 may prove to be the breaking point as oil company executives begin the process of setting next year’s budgets.
In the coming weeks and throughout the festive period there is no doubt the majority of oil companies will exercise further budget cuts, contemplate contract cancellations, consolidate their supply chain and introduce schemes to drive further costs out all at the expense of the oil service companies.
Whilst most oil companies can offset the pain to some degree by hedging, refinancing, disposing of non-core assets, increasing production volumes from existing fields or simply sitting on proven reserves until better times return, the oil services sector has no such relative luxury to contemplate.
For many CEOs and CFOs the focus in the coming weeks will be to hopefully secure further financial support from their investors and lenders to see them through the pain barrier.
The supply chain in the North Sea is now firmly in troubled waters with nowhere to go in this climate.
Without work or work that makes little or no profit and utilisation of their people and assets deteriorating by the day the prognosis for 2016 is that a fair share of companies will struggle to survive, those who do will be a shadow of their former selves or snapped up for rock bottom valuations by others with deeper pockets.
Almost daily I hear from oil services senior executives that some oil companies are relentless on applying pressure to cut more and more costs on already thin margin contracts.
Ridiculous amounts of time is spent burning man hours justifying and trying to explain that they can cut costs no more against the backdrop of an increase in risks associated with having to compromise on service quality, delivery and of course safety.
Surely this is not in the spirit of true “collaboration” the current buzz word used by so many oil companies but in reality implemented by so few.
So what can the oil services sector do?
Well for a start implement a lot more lay-offs. In 2015 the majority of job cuts focussed primarily on the “fat” that was built up in the years of excess but next year’s cuts will strike at the “muscle” of the oil services sector talent pool.
Committed, loyal, highly experienced staff, young graduate’s and the new entrant’s, people the service companies have invested in training over the past few years and desperately need to retain, will all be in the firing line.
The game changer to securing the future and longevity of the North Sea in a low oil price environment mooted by all is continued investment in new or improved cost effective technology and assets much of it developed by the oil services sector.
Do the oil companies really think the service sector can and will sustain technology investment in 2016 in this climate?
Not a chance as this is the first thing to go out of the window when companies are in survival mode.
So while oil company decision makers ponder over the coming weeks and months how they will further address their short term cost reduction predicament, which will include inflicting more pain on the service and supply sector, it would be in the best interests of the entire industry if they could just for once take a longer term view and cut the oil services sector some slack.
At the current rate of attrition within the oil services sector the oil companies must surely recognise that for some companies the day of reckoning is just around the corner if it is not already here.
The future of thousands of people employed in the oil and gas services sector and the wider community in Aberdeen and beyond is now firmly in the hands of the oil companies.
Surely common sense must prevail as without a stable and strong North Sea oil services sector the oil companies operating in the region are jeopardising their very own future prosperity and any chance of a swift recovery when better times return.
Les Park is managing director at Talon Board Advisory
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