Wages and expenses in Australia’s offshore oil and gas sector have increased significantly during the past five years despite a slight rise in revenue, a new Deloitte Access Economics report has found.
According to the major accounting firm’s report into Australia’s oil and gas marine support sector, increasing labor and operating costs, productivity issues and macroeconomic challenges have impacted the country’s international competitiveness.
Deloitte concluded that Australia’s high cost, low productivity environment is presenting challenges for support companies critical to the project supply chain.
It found that wages and total expenses per vessel had increased by 40 percent since 2007-2008 despite revenue increasing by only 8 percent.
Between 2008-2009 and 2009-2010, profits in the sector dropped 27 percent while wages grew by 19 percent during the same period.
Profit for each vessel in 2011-2012 was half 2007-2008 levels, and since 2007-2008 wages and expenses have doubled despite revenue only increasing by 50 percent. The sector employs 2,500 staff to vessels and another 10,000 staff in affiliated areas.
The report provides economic context for the current round of enterprise bargaining agreement (EBA) negotiations that will set wages and conditions for vessels servicing Australia’s offshore industry for the next four years.
Deloitte surveyed vessel operations and found that the maritime sector has been “tightly squeezed” in recent years as labor costs have risen.
“Strong wage growth combined with weakening profit margins over the past few years has left the offshore oil and gas marine support sector in a position where any significant, sustained growth in wages could threaten the ongoing viability of the sector,” according to the Deloitte report.
Deloitte added it was critical for the ongoing viability of the sector that the EBA process facilitates the employer flexibility and wage outcomes required to support the sustainability of vessel operators.
Steve Knott, Australian Metals and Mining Association chief executive officer, said the report supported the growing concern that cost pressure and productivity issues presented real challenges to operators within the Australian industry, and the economy more widely.
“The findings clearly demonstrate that the current competitive challenges facing vessel companies in Australia’s oil and gas sector have changed dramatically since the last EBA negotiations in 2009-2010,” said Knott.
“Given the significance of this key industry to the national economy, all parties to the current EBA negotiations must work together to keep Australia’s oil and gas industry financially viable and ensure it can provide sustainable employment opportunities.”