On the ‘brink of collapse’?

More bad news for the oil industry hit the headlines late last week (February 19), as the Aberdeen-based oil services firm Wood Group slashed contractor wages for the third time since the downturn in oil prices.

 
About 600 of the company’s total workforce of 7,500 will be affected by the pay cuts — they’ll see their wages plummet by 9 per cent.

 
Wood Group previously cut contractor wages by 10 per cent in May 2014 when oil prices first began to tumble and then again by another 10 per cent in December of the same year.

 
Wood Group’s workforce too, has been decimated over the last two years — as the firm reported its results yesterday (February 23), it highlighted that it had slashed 8,000 jobs since December 2014, with 2,000 of these posts gone in the UK alone.

 
Unite regional officer in Aberdeen John Boland criticised Wood Group’s relentless cost cutting measures that, he explained, would be bad for the industry as a whole.

 
“Our big fear is that this latest cut will spark another domino effect across the offshore contractor firms, intensifying the pace of a race to the bottom on jobs, pay, skills and working-time,” he said.

 
“The consequences for employment standards in the offshore sector could be dire where the future outlook is fewer employees working longer and harder for less,” Boland added. “Time and again we have warned government about the seriousness of what is happening in our oil and gas sector but the responses so far have amounted to sticking on plaster on a gaping wound.”

 
One oil industry veteran also warned that knee-jerk cost-cutting at times of crisis will be devastating for the long-term future of North Sea oil.

 
The UK manager of Brunel International, a company which provides specialist knowledge on oil and gas, told The National that there would be a gaping skills gap once the price of oil recovers — a concern that Unite has long expressed.

 
Jo McIntosh noted that this was the third downturn she’s seen in her time in the industry.

 
Cutting far deeper
“It’s certainly cutting far deeper than anything I’ve seen,” she said.

 
“Unfortunately, we are going to see further redundancies and further cuts,” she added. “We suffered from big knowledge gaps from the last downturns — in times like this, companies aren’t spending and invariably that means graduate programmes and training will take a back seat — so we were already suffering from that when this crisis happened.”

 
Coupled with an ageing workforce, McIntosh argued, the skills gap will only continue to widen.

 
“There’s a real risk that the knowledge and expertise will leave the industry and the gap will be unfilled,” she warned.

 
Wood Group’s slashing of jobs and pay is being reflected across the entire UK offshore sector, and a new report by trade body Oil and Gas UK published yesterday (February 23) shows that the industry is on the brink of collapse if action isn’t taken quickly.

 
The report highlighted that, despite aggressive cost-cutting, exploration was at an all-time low.
While ÂŁ8bn was spent each year in new projects over the last five years, only ÂŁ1bn was expected to be spent this year.

 
If the rock-bottom oil price of $30 a barrel that’s plaguing the industry globally doesn’t improve this year, UK Oil and Gas estimates that more than 40 per cent of all UK Continental Shelf (UKCS) oil fields will be operating at a loss, which will further slow down exploration and investment.

 
Most shockingly off all, the report found that pain in the form of job losses and pay cuts may actually hit the supply chain harder than the offshore frontline. Revenue in the supply chain fell by about a quarter last year. Engineering, procurement, construction and installation may see a full 50 decline by the end of this year.

 
Support measures
Both the industry and offshore trade unions agree that action — from both the Scottish and Westminster governments — is urgently needed in the form of tax relief and other measures of support.

 
UK Oil and Gas has called for a significant reduction in headline tax rates for both old and new assets alike in order to drive investment. Last year, the UK government announced tax cuts on older oil and gas fields from 80 per cent to 75 per cent, while newer oil and gas fields saw a tax cut from 60 per cent to 50 per cent.

 
Unite, however, has long emphasised that benefits from any emergency tax relief must be channelled into supporting the workforce and ensuring the oil industry’s long term future — and not to line shareholders’ pockets.

 
“We agree emergency tax measures should be implemented so we can give oil and gas production and the workforce a fighting chance for the future,” said Unite regional officer Tommy Campbell.

 
“However, the savings generated from these breaks must be focussed as a priority on the defence existing employment, skills retention and standards and to sustain the North Sea as a high-skill, high-wage sector,” he added.

 
Campbell pointed to the fact that Wood Group, which has shed thousands of jobs and slashed pay, announced its results yesterday and said it would hike its dividend despite falling profits and cost cutting.

 
“This is a clear example of putting profits over people,” he said. “It is the offshore workers themselves who have helped get the business through this hard time. Instead of valuing their efforts, the company rewards its shareholders who can well afford cuts to their dividends, while mercilessly sacrificing the livelihoods of those who actually keep their business afloat.”

 
“This is precisely why we have to ensure that savings from any tax relief are not merely funnelled into oil companies’ profits,” he added. “They must be targeted for the benefit of the workforce.”

 
As tens of thousands of jobs have been lost in North Sea, Unite has also warned members to be aware of online scams as the oil slump grips communities dependent on the offshore sector for employment.

 
“We are warning our members to be extra vigilant of these scams which prey on the fear and uncertainty across the North Sea because of the oil price crisis,” he said.

 
Campbell said that several members have reported seeing fake offers for oil jobs and money online. No one is sure where, precisely, these scams are coming from, but it is clear, Campbell noted, that the scams are a direct result of the oil crisis.

 
“The environment could get even more difficult so the industry must clamp down as best it can on exploitative scams.”