The North East contributes as much to the UK oil and gas industry as almost the whole of Scotland – excluding the oil and gas capital of Aberdeen – new research reveals.
And Aberdeen companies are now turning to North East firms to help fulfil contracts in greater numbers than businesses on their own doorstep.
These findings come from a survey produced by the Aberdeen & Grampian Chamber of Commerce (AGCC) and North East Chamber of Commerce (NECC) and sponsored by law firm Bond Dickinson.
The report, which is unveiled today, highlights the continued confidence in the sector on the back of a strong oil price and favourable Government policies, although it says the record-breaking surge of investment of the last 18 months is set to taper to more sustainable levels over the coming months and years.
The report surveyed opinions of more than 100 UK oil and gas contractors and operators, and reported that when it came to placing major contracts outside Aberdeen, 13% of potential suppliers were based in North East England, compared to 15% for the rest of Scotland.
And when it comes to placing contracts for minor work, then 39% of the supply chain is based in North East England, compared to 38% in North East Scotland.
James Bream, research and policy director for the AGCC, said: “We see the North East of England as a critical part of the oil and gas industry.
“As an industry, we need to have a well-developed and strong supply chain to remain competitive, both in terms of price and quality. We see only advantages of the North Easts working closely together as we have.
“Our survey shows that 13% of respondents considered the North East to be a key location for suppliers when they are spending, and this is very close to the rest of Scotland, for what is a much smaller region.
“This is great news for the North East and shows how important the region is as a supply chain partner.
“What this also means is that North East is probably disproportionally in a good place to benefit from investment and contracts being secured as part of the supply chain.”
Almost three-quarters of the North Sea oil and gas platforms were built in the North East, and the region has gone on to become a world leader in the global subsea oil and gas industry, with a skilled and well-developed supply chain consisting of hundreds of companies.
George Rafferty, chief executive of Durham-based NOF Energy, said: “For several decades, North East companies have been ingrained into the supply chain and have been involved in thousands of projects that have supported the discovery and recovery of oil and gas resources from the North Sea. Through the technology-led solutions and skills that have been developed in the region, I am in no doubt, as this research suggests, that this will continue for many years to come.
“Since the birth of the UK offshore industry, there has always been a symbiotic relationship between Aberdeen and the North East of England.
“NOF Energy works closely with a few hundred members from this region that either trade with Aberdeen or have an operation in the Granite City. In addition, we have a cluster of members based in Aberdeen that recognise the resource the North East’s supply chain offers and are keen to build and maintain mutually-beneficial relationships.”
Nortech Group is an engineering design and procurement service provider based at Wynyard on Teesside, which supplies its Aberdeen clients with brownfield repair and modification projects
Its products include heaters, caissons, accommodation modules, reverse osmosis units and deluge systems.
Managing director Bryan Bunn said: “The report is good news for the North East, which has become a critical part of the supply chain. Many of the region’s engineers now work in Aberdeen due to their skillsets being much sought after in the booming industry.
“Clients appreciate that we are responsive and flexible and able to meet demand within a client-determined timescale.
“Smaller independently-owned companies such as ours. that tend to be based out of our region, are far more likely to provide cost-effective and timely solutions within tight schedules. We have the ability to fast-track projects while adding and maintaining real value to the quality and delivery of the projects.”
Richard Cockburn, oil and gas partner at Bond Dickinson, travelled down from Aberdeen to the firm’s offices in Stockton to unveil the findings of the report to key NECC members last week.
He said: “Some 65,000 North East people work in the industry, which shows the skills base is here. The region also has the facilities, the ports, commercial areas and proximity to the North Sea.
“The North East is cheaper than Aberdeen, which makes it competitive. In the last few years, we have been through a historic period of record investment, and while the appetite to invest is still there, it will not stay at the current record levels.
“The flipside of the future decline in investment and production will be the rise of the decommissioning industry.
“It is no coincidence that Shell chose to decommission the Brent field modules at Able on Teesside, and as exploration and production declines, the factors that make the North East strong in the oil and gas industry will help it with decommissioning.
“Then there is the potential for the offshore wind industry in the North Sea. This will not just be construction, an enormous industry will develop in maintenance and will need port facilities.
“All of this will provide great opportunities and could lead to thousands of new jobs being created in the region.”
He added that one consequence of this is the increasing amount of interest from the Aberdeen private equity community in the North East looking for ‘good businesses with good managements and a good order book’.
Last year was one of record investment in the United Kingdom Continental Shelf, with spending totalling £14.4bin, and a further £13bn will be invested this year, before tapering off to around £7bn by 2016, say experts.
This has been sparked by a host of new allowances to encourage field development from the UK Government, although rising costs have delayed at least five major schemes in the last 12 months.
Bream added: “The resources are still there and many of these projects will go ahead in the future, although there is a risk that the infrastructure may not be there to deliver them.
“The continued optimism of operators and contracts in overseas market is good news. The UK is the testing ground for new technologies and means we are ahead when it comes to competing on the global stage.”
Bream said there were some signs of a cooling off in Aberdeen in recent months with less work in early stage designs for projects.
From North East Scotland to North East England
As North Sea spending increased dramatically in late 2011, on the back of UK government tax breaks, a noticeable new trend developed, with more firms from Aberdeen heading south.
One of the first to arrive on Tyneside was Flexlife, an oil and gas industry specialist in subsea project and integrity management, which grew its headcount from three to 28 in its first year.
Aberdeen-based oil and gas specialist haulier Grampian Continental opened up a base in Bedlington, and Scottish oil and gas player Glacier Energy Services purchased Blyth-based Site Machining Services in 2012.
One of Aberdeen’s largest oil services’ players, the FTSE-listed Wood Group, has located its integrity management division in Gosforth.
And one of the most recent arrivals is subsea installation contractor Bibby Offshore. Since opening an office on Gateshead Quays in November, it has grown quickly and now employs around 30 staff.
Project director Shawn Bulgen said: “For a number of years, skilled engineering professionals have been commuting to Aberdeen-based oil and gas companies on a weekly basis.
“Our expansion into Newcastle will make us well placed to attract talent from the strong engineering tradition in the region.”
James Bream, research and policy director for the Aberdeen & Grampian Chamber of Commerce, added: “North East England can compete with Aberdeen on quality and price and is increasingly being seen as essential partner to firms north of the border.”
Findings from the report of the two chambers
The findings are part of the 20th Oil and Gas Survey, conducted by the North East Chamber of Commerce and Aberdeen & Grampian Chamber of Commerce.
It is the first time the NECC has partnered with its Scottish counterparts to launch the survey, which has been independently conducted by the Fraser of Allander Institute since 1996. It provides an authoritative overview of trends in activity, investment, employment and optimism in the UK Continental Shelf (UKCS) and internationally, as well as exploring issues such as the potential impact of Scottish independence.
Its findings are used by both Scottish Chambers of Commerce and British Chambers of Commerce to develop national energy policy.
NECC director of policy Ross Smith said: “The North East of Scotland and the North East of England enjoy many similarities, not least the skills, experience and reputation for excellence in the field of offshore oil and gas.
“Both regions have a proud heritage in the sector, and whereas Aberdeen is the undisputed heavyweight champion of the UK, the North East has the ambition and know-how to punch well above its weight when it comes to offshore engineering.
“Every year, the AGCC publishes a survey examining the health of the oil and gas market and this, their 20th year, were welcomed to Stockton to present their findings.”