Survey: Confidence remains 'fragile' in UK upstream industry

The outlook of the UK upstream oil and gas industry remained fragile in this year’s second quarter, increasing modestly to 54 points from 51, according to Oil & Gas UK’s latest business confidence index.

“Across the operator community, confidence increased slightly from 46 to 48 points but this score still represents a negative outlook,” said Ken Cruickshank, OGUK’s supply chain manager.

OGUK’s index measures a number of economic indicators, including changes in business confidence, activity levels, business revenue, investment, and employment.

The index gauges overall industry confidence on a 100-point scale, with a higher rating (above 50) indicating a more positive outlook and a lower rating (below 50) representing a more negative viewpoint.

“Contractors are slightly more confident, with their outlook rising from 54 in the first quarter to 56 in the second,” said Cruickshank, adding that confidence took a hit at the end of the first quarter by the unexpected tax increase announced in the UK government’s 2011 budget.

“While it appears that some companies may feel reassured by the Treasury’s willingness to engage on ways to mitigate the negative impact of the tax increase on investment, the confidence of many independent operators in particular continued to decline in the second quarter,” Cruickshank said.

The second quarter index illustrates that contractors are generally more positive regarding future investment and activity than operators, Cruickshank said.

“Twenty-seven per cent of contractors responding to the survey claim that activity levels are stable and that they expect that trend to continue, compared with just 18% of operators,” Cruickshank said.

While still in negative territory overall, the operators’ 2-point increase in confidence was driven by the majors whose index rose to 52 from 39.

In contrast, the independent operators registered a decline to 47 from 48.

The contractors’ confidence recovered somewhat from its 7-point decline in this year’s first quarter with a 2-point increase in the second quarter, attributed to a rise among drilling and well services contractors and facilities providers.

The OGUK Index, which started in January 2009, is circulated to both operators and contractors in order to gain an understanding of confidence levels throughout the whole oil and gas industry.

Contact Eric Watkins at hippalus@yahoo.com.

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