Blog

Oil & Gas Contracting Day Rates: Will There Be Recovery in 2018?

After the challenging market conditions of the past 3 years, we look forward to a fresh start in 2018. The new year spells a new beginning for the Oil & Gas industry as we see green shoots of a better future. Thanks to the agreement between Russia-led non-OPEC and OPEC countries to extend oil production cuts, the oil price is recovering. Yet, the industry remains cautious, but it must be ready to reward experienced Oil & Gas personnel, a critical factor to leveraging the positive oil and gas industry outlook.

The focus on reducing costs in the last few years appears to be paying off for oil companies. Many industry spectators forecast better margins for 2018. But, the availability and supply of experienced hands are crucial to success. Recruitment rates saw the greatest cuts, though the cuts are slowing down. For instance, job reduction in the last 12 months dropped to 4.2% compared to 19.4% in 2015 and 15.6% in 2016. In 2017, 23% of oil companies reduced their headcount; conversely, 30% increased theirs.

Increase in Activities Require Experienced Personnel

Activity levels in the UKCS and the ability of UK-based companies to win overseas contracts will greatly determine the number of jobs being supported in the UK. When looking at staff versus contracting roles, staff are likely to have more secure jobs in the near term as their role is closely linked to operating expenditure. On the other hand, contracting roles are linked to capital investment and are less secure.

The rise in certain activities such as drilling, and decommissioning could result in overall improvement in job security and the need for contracting roles. For instance, decommissioning expenditure is set to rise to around £1.8 billion, accounting for over 10% of total expenditure. We expect to see this increase in contracting roles from spring 2018 onwards.

Recovering Contracting Terms

As expected, the industry downturn brought with it dramatic decline in the day rates paid to contractors. Many contractors saw reductions of up to 35% compared to their 2014 day rates. This reduction in rates has continued, with rates declining by a further 2% in 2017.

Marginal increases in recruitment and the easing of headcount reductions now observed in the market brings hope. We see some operators extending contracts to take their workforce up to the end of 2018. Contracts have been of a shorter nature in the last 18 months. Therefore, the emerging trend of longer contracts of between 10 and 12 months are good news for contractors in the oil and gas industry.

Oil & Gas Industry Confidence Returning

It is our opinion that the reductions have now bottomed out and that market rates will hold in the first quarter of 2018. With the increase in market confidence, we expect that demand for skilled manpower will rise and it will become harder to find talent as the year progresses. Therefore, we anticipate marginal increases to day rates in mid-2018. The increase is unlikely to be across all areas of exploration and production. It will focus on specific projects such as High-Pressure High-Temperature (HPHT), Deepwater and spearhead campaigns. The anticipated rise in day rates is between 2% and 5%

60% of companies believe that the worst of the downturn has passed. 2018 should see more investment, especially with the recent Transferable Tax History (TTH) ruling being announced in the budget taking effect in November 2018. A marginal increase in exploration and appraisal drilling, and rising oil price should result in a ramp up in employment and contracting opportunities during the year. It will be a race to secure the best industry talent.

Our view is based on reflecting over the last 12 months, combined with recent Oil and Gas surveys conducted by the Chamber of Commerce and Oil and Gas UK.

To get the full Contracting Personnel Market Overview report or to discuss the current upstream market conditions and your recruitment requirements, get in touch with Drew Alexander:

Tel:   +44 (0)1224 261926           e-mail: drew.alexander@prodrill-ers.com