The UK's oil industry is in "crisis" as prices drop, a senior industry leader has told the BBC. Oil companies and service providers are cutting staff and investment to save money. Robin Allan, chairman of the independent explorers' association Brindex, told the BBC that the industry was "close to collapse".
"It's almost impossible to make money at these oil prices", Mr Allan, who is a director of Premier Oil in addition to chairing Brindex, told the BBC. "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."
The New York Times reports that back in September, when oil was still selling for close to $100 a barrel, North Sea energy reserves were a huge factor in Scotland's decision on whether or not to secede from Britain. The Scots voted to keep the kingdom united but three months later, with oil prices in the $60 range, it is this very North Sea oil whose future is in a precarious situation.
If Brent crude, the oil produced in North Sea fields, remains around $60 to $70 a barrel, at least 85 percent of new British offshore oil and gas resources which are now in the planning stages are at risk of being dropped.
According to the New York Times, that could mean the abandonment of $27 billion worth of planned development and a threat to the jobs of many of the nearly half a million people in Britain who work directly or indirectly in the oil industry.
The US-based oil giant ConocoPhillips is cutting 230 out of 1,650 jobs in the UK. This month, the company announced a 20 percent reduction in its worldwide capital expenditure budget in response to falling oil prices, reports the BBC.
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 percent to restore their profitability at current prices.
"It is very hard to keep some businesses afloat at current oil prices," said Mike Tholen, economics director at Oil & Gas UK, a trade association. "If we have a sustained period in which prices remain in the 50s," he said, "you can expect to see parts of infrastructure in the North Sea disappearing."
For the biggest companies, the best bet now may be to wait out the winnowing, reports Stanley Reed of the New York Times. With the billions of dollars in cash reserves, built up during the boom, they can probably afford to let this drop off in prices run its course even if the North Sea will not necessarily be where they will put as much emphasis when things pick up.
The lower prices may benefit consumers, but according to a recent Inquisitr article, not everyone, including the oil industry, is smiling.
[Image via the Telegraph UK]