North Sea oil industry in crisis?

In a recent interview, Robin Allan, chairman of the independent explorers’ association Brindex expressed concerns that the oil industry is “close to collapse”, with no new projects in the North Sea being profitable as oil is below $60 per barrel.

North Sea oil rig

“It is almost impossible to make money at these oil prices,” says Mr Allan, director of Premier Oil in addition to chairing Brindex, “It’s a huge crisis. “

Mr Allan continued; “This has happened before, and the industry adapts, but the adaptation is one of slashing people, slashing projects and reducing costs wherever possible, and that’s painful for our staff, painful for companies and painful for the country.

“It’s close to collapse. In terms of new investments – there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks. Budgets for 2015 are being cut by everyone.”

These comments echo remarks made by the veteran oil man and government adviser Sir Ian Wood, who last week predicted a wave of job losses in the North Sea over the next 18 months.

The US-based oil giant ConocoPhillips is cutting 230 out of 1,650 jobs in the UK. This month it announced a 20% reduction in its worldwide capital expenditure budget, in response to falling oil prices.

Other big oil firms are expected to make similar cuts to their drilling and exploration budgets. Research from the investment bank Goldman Sachs predicted that they would need to cut capital expenditure by 30% to restore their profitability at current prices.

Service providers to the industry have also been hit. Texas-based oilfield services company Schlumberger cut back its UK-based fleet of geological survey ships in December, taking an $800m loss and cutting an unspecified number of jobs.

More recently, Aberdeen-based Wood Group announced a pay freeze for staff and cut rate for contractors. Apache, one of the North Sea’s biggest producers has also followed suit and will put a 10% reduction on contractor wages in place from January 2021.

A spokesperson from Oil and Gas UK said; ”While Oil & Gas UK cannot comment on the commercial decisions, and individual opinions, of its members, the industry trade body recognizes that the falling oil price is affecting activity across the UK Continental Shelf and companies are having to take hard decisions in light of this challenging business environment.”

UK oil and gas production has been in decline since 1999 – though the rate of decline slowed in 2013, a year which saw the highest level of investment on record.

However, the Department of Energy and Climate Change said; “The recent sharp reductions in oil prices are very challenging for companies active in the North Sea. We have seen very little evidence of new projects being cancelled or deferred in reaction to lower oil prices.”

 

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