Cautious economic recovery in Aberdeen

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Barry Fraser and Ian Knott

Aberdeen’s economy is showing signs of cautious optimism, according to a leading business and financial advisor.

Grant Thornton suggests a prolonged low oil price has driven significant change within Scotland’s energy sector, with businesses forced to reduce costs, increase efficiency and evaluate how they work with each other.

Oil and Gas UK estimates more than 120,000 people have lost their jobs in the industry in the last three years, primarily in the north east of Scotland, with many oilfield services businesses bearing the brunt of delayed or cancelled projects, growing margin pressures and a lack of visibility over future orders. But, a more positive outlook for oil prices and a number of large deals in the sector appear to be restoring some momentum in the region’s marketplace.

Barry Fraser, Grant Thornton’s Managing Director in Aberdeen, commented:

“There are undoubtedly many challenges that still lie ahead for the oil and gas sector in Aberdeen, but we’re seeing some glimmers of light after a prolonged period of uncertainty. Chrysaor’s recent acquisition of assets from Shell for a price of up to $3.8 billion is one of a number of recent upstream deals that have contributed to increased confidence over future North Sea activity levels.

“Many north east businesses are no longer focused on pure survival and are seeing an increase in tender activity and new opportunities, particularly overseas. However, international growth also carries risk and companies need to be armed with knowledge around potential partners and advice on how to structure and fund operations in markets such as the Middle East and Africa to avoid expensive banana skins.”

Even though many companies are now seeing light at the end of what has been a very long tunnel, business owners need to ensure that when new opportunities are secured, they do not create cashflow and other funding problems, which could have a severe impact on the business.  Similarly, businesses will need to ensure that they can access the right skilled personnel in sufficient numbers to maintain quality standards, and also avoid a return to unsustainable levels of costs in the North Sea.

Ian Knott, Director at Grant Thornton in Aberdeen, added:

“Throughout the downturn, businesses in the city have had to ride out the crisis, but there’s now more openness to change, with increased partnering and a recognition that the energy sector needs to maintain the efficiencies that have been achieved.

“It’s reassuring to see the sector and the wider region taking a more positive view of the future, but businesses will also need to keep a close eye on cash resources as they return to growth as this is a period where we see many business failures due to companies overstretching themselves. There also needs to be an industry-wide approach to addressing skills shortages. A significant number of skilled workers have now left the industry, so businesses across the supply chain will need to be willing to invest in training if the industry is to avoid a return to poaching of employees and spiralling wage costs – all of which can have a negative impact on the long term viability of Scotland’s energy sector.”