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Recovery underway? An executive review of Q2 in the oil and gas industry

The results of these efficiencies have seen a provisional 2.5% increase in UKCS production in Q1 and Q2 – a small but major upturn in fortune.

Ms Werngren went on to point out that there was still concern amongst contractors in the supply chain but they recognised that engagement levels with original equipment manufacturers (OEMs) had increased as they go in search of cost-effective ways to continue operating.

THE COST OF STAFF

As the industry waits with bated breath to discover the outcome of a stabilising industry, the challenge to cut costs has already begun with Shell and Centrica leading the way.

Q2 saw both companies reveal that 12,000 significant jobs in total are to go with a major internal restructuring set to take place at their headquarters. With oil prices halving over the last 12 months, it has left firms with simply no alternative.

Speaking on the cuts, Centrica Chief Executive Iain Conn said it wasn’t just staff costs they were looking to reduceExploration and production in the North Sea will also be scaled back in what is being called a “major group-wide efficiency programme” as the group aims to deliver a “progressive dividend policy”.

TAKEOVER ON THE TABLE

Whilst Centrica have opted for their cost-cutting strategy starting in Q2, Shell announced they would be cutting jobs alongside making a takeover bid for the BG Group for a reported £47 billion. They believe a plan to combat the prolonged downturn includes purchasing BG which would act as a “springboard to change Shell into a simpler more profitable company”.

The move, which would create the world’s biggest gas producer, will help to reduce exploration spending, re-allocate capital to long-term fields and take advantage of economies of scale.

OUTLOOK FOR Q3

Whilst negativity still surrounds the industry, there are growth shoots appearing from the oil price collapse last year. Amidst the job losses and halt to new exploration projects, the industry is restructuring for the long-term good – with the oil giants leading the way with new strategies to combat ever-increasing costs and inconsistent oil prices.

Q3 will be interesting viewing following the jobs cuts from Centrica and Shell, with the latter hoping to complete the acquisition of BG Group in the quarter. Failure to secure the purchase may mean more uncertainty, but with oil prices gradually recovering from the January 2015 levels of $47 per barrel, the industry will hope that it has got over the worst of the economic blip.

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