North Sea Oil Sector faces perfect Storm, predicts 10,000 job loses, Experts advocate Tax Cuts

North Sea Oil Sector faces perfect Storm, predicts 10,000 job loses, Experts advocate Tax Cuts

Evidently as  lower crude prices persists, banks may no longer provide credit.

Producers in the North Sea, ranging from giants such as Royal Dutch Shell and Total to smaller players such as EnQuest and Ithaca Energy are contending with the most difficult conditions in living memory, this is primarily because the North Sea which is currently Western Europes most prolific oil and gas basin is one of the most expensive place to produce crude oil in the world, and the slump in crude oil price have consequently resulted in many fields becoming unproductive financially as operators may not be able to make profit from them.
Operators wants to reduce costs but the risk remains that some producers with large loads of debts could collapse, the slump in Brent crude from $115 in June last year to $ ranges between $45-50 this year resulted in banks not will to provide operators with credits that they need to traverse the current downturn.
The effects on countries is notably high, UK and Norway relied on the North Sea for large amounts of tax revenue, production for crude was high in the UK section of the North sea in year 2000 but has dramatically fallen and exploration for new finds is rare.
The slowed growth and low price rout may also encourage decommissioning of fields that should have continued to pump crude oil, A consultancy Wood Mackenzie from their publication last month predicted that 140 of the 330 fields in the UK North sea may close in the next five years, surprisingly if the price returns to $85 per barrel.
Consequently operators predicts a 10,000 job loss in the North sea sector, two of the biggest independent oil explorers in the North Sea thinks so, this have aggravated the hopelessness of any gains in the recent slump in oil price.
So far 5,500 people directly employed in the industry have lost their jobs, this is 15% of the total workforce, this is due to the fall in oil price according to the Oila nd gas UK, a trade body for the offshore sector.
Experts are advocating a further reduction in tax bill if the price of crude oil remains low,Deirdre Michie, the chief executive of Oil and Gas UK, said more action could be required if prices fail to rise.

She insisted the sector had “turned a corner”, despite cautioning that the “challenging times we face are set to continue for a while”.

But she stressed: “If the oil price continues to be lower for longer we will need to work with the Treasury to see what other measures may be required, including revising the headline tax rate, which would be consistent with the Government’s fiscal strategy of tax rates falling over time.”

Some 45 billion barrels of oil and gas have been extracted from the North Sea in the last 50 years – enough to fill almost three million Olympic-sized swimming pools, Ms Michie said.

Addressing a fringe event at the SNP conference in Aberdeen, she said extracting “our indigenous oil and gas reaps huge economic and lifestyle benefits for the country and avoids, if you think about it, expensive and less environmentally friendly imports”.

She also said the sector could be “confident the demand for our product and services will continue”, saying oil and gas makes up 70% of the UK’s primary energy need.

Ms Michie accepted the North Sea is facing “difficult times” with operators in the UK continental shelf spending more on operations last year than they earned from production, with this “exacerbated by the sharp and ongoing fall in the oil price”.

She added: “We expect capital expenditure to fall from a record high of £14.7 billion, to fall by about £2 to £3 billion over the next two to three years.

“So there’s therefore real concern about the gap in terms of projects in the pipeline as well as the current lack of exploration.”

She spoke about the “need to overcome the current challenging operating environment”, and added: “We do consider a corner is being turned, the concerted action of companies is beginning to yield results that will help to restore the attractiveness of the basin.

“We completely understand these challenging times we face are set to continue for a while, but the direction of travel we’re on is the right one and we need to stay focused.”

The UK Government acted earlier this year to cut the supplementary charge paid by the industry, which has come under pressure as a result of the decline in oil prices reports The herald Scotland.

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