The Press and Journal (Aberdeen and Aberdeenshire)
Firms ‘losing money since before crash in oil prices’
North Sea: Deficit ‘set to be £2.7bn’
North Sea operators have been losing money for the past four years – since before the oil price crash, according to the annual economic report for 2016 by trade body Oil & Gas UK (OGUK).
This year, the overall deficit on the UKCS is expected to be £2.7billion.
This is a reduction on losses of £4.2billion seen in the prior two years – 2015 and 2014 – as operators cut costs in response to the oil price fall and production increased as a result of prior years of record investment.
OGUK selects “free cash flow deficit” as a key measure of financial performance, reflecting cash generated over money spent to maintain or invest in its assets. It adds that operators’ average rate of return came in at a razor-thin 0.2% margin in the first quarter of 2016.
As a result of the deficit – even found in 2013 when oil prices peaked at over $100 per barrel – OGUK warned operators’ borrowing has risen and that the cost of lending will also surge as a result.
This is expected to lead to an increased chance more firms will be in “distress”.
High debt levels will likely also slow any recovery if oil prices go up as firms use extra cash to pay off debt rather than invest, OGUK warned.
Deirdre Michie, OGUK chief executive, added that any further decline in investment would continue to have a knock-on effect on jobs.
Already the UK oil and gas industry has shed 120,000 jobs.
“People are starting to balance books and starting to turn around, but there is still that gap between them balancing the books, starting to make some money and starting to turn investment on,” she said.
“We can expect a spend that keeps going down and that has an impact on jobs.”
Jake Molloy, regional organiser for trade union RMT, said the 27% drop in employment was “stark
“We can expect a spend that keeps going down and that has an impact on jobs”
and depressing”. He queried whether OGUK’s statistics – which take in direct, indirect and “induced” employment which counts jobs outside the sector – are fully up to date.
He said there must be “questions around the accuracy of the offshore numbers quoted” with regard to the estimated reduction of workers over a given period. He added: “Even a conservative approximation using the number of mobile drilling rigs, diving and supply vessels laid up would put the offshore figure well in excess of the figure reported.”
He dismissed the upside of “performance improvements” revealed in the OGUK report.
“On top of the thousands made redundant there are no ‘positives' in the report for those workers that remain in employment,” he said.
“When workers read statements which talk about the ‘positive future that could lie ahead if the sector makes the necessary adjustments now’ there is only one conclusion can be drawn – more cuts.”