Plunging prices threaten UK\\\'s \\\'cash cow\\\' oil industry

FE Team | Published: January 26, 2015 00:00:00 | Updated: November 30, 2026 06:01:00

LONDON, Jan 25 (AFP): With oil prices tumbling and ageing equipment making extraction ever more expensive, Britain's North Sea oilfields face a struggle for survival, threatening a vital source of income and energy.
The oil industry has been hard hit by crude prices falling more than 50 per cent since June to less than $50 a barrel.
Energy giant BP recently announced it was cutting 300 local jobs, mostly in the Scottish city of Aberdeen, Britain's oil "capital".
Others, including Shell and Chevron, warned late last year of similar scale cuts.
The publication of the oil majors' financial results in a few weeks augurs more bad news, with British subcontractors particularly nervous that they may be deemed expendable.
In anticipation, oil services company Wood Group has already cut staff salaries by 10 per cent.
The industry has ridden out previous fluctuations, with prices dropping as low as $38.37 per barrel during the depths of the global economic crisis in 2008.
"We've seen oil prices fall in the past and it has recovered," said Neil Gordon, chief executive of Subsea UK.
"There is confidence that it will recover, but that you'll have to go through an amount of pain, until the price recovers."
The recent price fall has only magnified existing problems of high operating costs in the deep offshore fields, with producers desperate to trim budgets even when prices were higher.
Faced with dwindling margins, the majors are beginning to think the unthinkable -- abandoning Scotland's oil and gas fields, which have seen a 50 per cent fall in production over the past decade.
The BP-owned "Forties" field, which celebrated its 50th anniversary this year, produced around 500,000 barrels per day (bpd) at its peak, according to Colin Welsh, CEO of the investment bank Simmons & Company.
Today, the combined production of all Britain's North Sea fields is estimated at 800,000 bpd.
"They'll have to make the North Sea a lot more attractive, and that involves reducing the tax rates," said Welsh.
The government for too long has treated the oil industry as a "cash cow", argued several officials who highlighted the 60 to 80 per cent tax rates levied on oil companies.
"If you look at Norway, they get very significant tax breaks for drilling exploration wells, which encourage them to deploy that money to do another one and another one," said Graham Stevens, finance director of Plexus, which specialises in wellheads.
With Britain's general election just months away, politicians have recently been much more keen to show support for the North Sea, particularly in Aberdeen where more than half the jobs depend on oil.