IT has undoubtedly been a long, hard road for the Scottish oil and gas services sector and for the Aberdeenshire economy but there are, at last, early signs that the darkest days might be coming to an end.
A survey published yesterday by Scottish Chambers of Commerce revealed what was described by the business organisation as a “startling” turnaround in optimism in this key sector of the economy north of the Border.
Not only that, but the survey also showed a sharp slowing of the previously precipitous pace of decline of overall sales revenue for firms in the sector to a barely discernible rate. What is more, Scottish oil and gas services firms are now, overall, predicting a rise in sales revenues in the current quarter.
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The hard numbers in the Scottish Chambers survey are worth setting out in detail because the improvement in them, admittedly from a low base, is so stark.
The survey found 35.2 per cent of Scottish oil and gas services firms were more optimistic in the first quarter than they had been in the preceding three months. Only 14.8 per cent were less hopeful. The resultant 20.4 per cent balance enjoying an increase in optimism contrasted with a net 17.7 per cent reporting a decline in the preceding three months. In the first quarter of last year, a net 47.3 per cent of Scottish oil and gas services businesses reported a fall in optimism, so the turnaround over that timeframe is even more dramatic.
A balance of 1.9 per cent of oil and gas services companies in Scotland reported a fall in sales in the first quarter. This survey finding signals a far less steep decline than that indicated by the net 68.9 per cent posting a drop in sales in the first quarter of 2016.
And a net 31.5 per cent of Scottish oil and gas services firms forecast a rise in sales this quarter. In the opening three months of 2016, a balance of 35.1 per cent had projected a decline in sales on a three-month view.
Garry Clark, head of Scottish Chambers’ economic development intelligence unit, said: “The numbers there look spectacularly better than they were a year ago. That has got to be good in terms of that part of the economy beginning to show signs of picking up.”
A survey late last month from Royal Bank of Scotland signalled the oil sector-induced downturn in the north-east appeared to have troughed. North-east firms, while signalling an overall fall in activity in the three months to February, predicted a resumption of growth. Specifically, a net 10 per cent of companies in north-east Scotland predicted business volumes would increase over the next six months.
Royal Bank chief economist Stephen Boyle said at the time: “It looks as if we have got to the trough in the north-east. It is the first positive sign we have had in the north-east for two years or more.”
This will be good news indeed if firms’ forecasts are borne out, not just for oil and gas services companies in the north-east but for the many other businesses dependent on the fortunes of this sector, including shops, hotels, pubs and restaurants.
Bank of Scotland’s latest Purchasing Managers’ Index report appeared to give mixed signals relating to the fortunes of the oil and gas sector.
In the context of a worrying decline in overall services activity north of the Border in March, Bank of Scotland said: “Political and economic uncertainty, alongside a low oil price, were reasons given by panel members as factors behind the contraction.”
So the oil price environment, as well as Brexit-related uncertainty, looks still to be firmly at the forefront of the minds of some services company bosses.
But the survey showed Scottish manufacturing growth remained strong in March, with Bank of Scotland declaring: “Anecdotal evidence suggested that better business conditions and an upturn in the oil and gas sector were factors behind positive sentiment.”
Revealing a 19 per cent year-on-year drop in Scottish corporate insolvencies in the first quarter of 2017, accountancy firm KPMG’s Blair Nimmo declared: “We have seen some stability return to the oil and gas sector.”
It is important to note Mr Clark’s point about the oil and gas services sector “beginning to show signs of picking up”. And Mr Boyle’s comment about the “first positive sign” in the north-east for at least two years in Royal Bank’s economic survey. And Mr Nimmo is talking about “some stability” returning.
It is early days. And, at this stage, it would be unwise indeed to take the view that it is all going to be plain sailing for the oil and gas services sector from here.
As with any recovery, firms in some parts of the oil and gas services sector will see a faster and sharper recovery than others. Likewise, those who are working in the sector, or who have lost jobs amid a North Sea downturn triggered by the tumble in global crude prices and are seeking new employment, will encounter differing fortunes depending on their specialisms.
Aberdeen, having endured the immediate aftermath of the global financial crisis relatively unscathed as most other parts of the UK and many other economies around the world were hammered, has suffered a grim time since global oil prices started to plunge in 2014. And the broader Scottish economy has undoubtedly been weighed down heavily by the knock-on effects of the oil and gas sector’s woes.
However, the recent signs of improvement for the key Scottish oil and gas services sector now look like a lot more than mere straws in the wind.
It will, obviously, still be a long road back to better times for the sector and those who work in it.
However, every journey has to begin with the all-important first steps, and things do look like they are finally heading in the right direction. As the sorry consequences of Brexit take their toll on Scotland, as well as on the rest of the UK, hopefully an improvement in the fortunes of Scotland’s oil and gas services sector can help mitigate some of the damage.