North Sea Advised Against Knee-Jerk Reactions to Oil-Price

Published at 10:05AM - 12/02/15

PriceWaterHouseCoopers has warned oil and gas businesses operating in the North Sea that any any hasty decision-making in response to the lower oil price could put the industry’s future at risk.

However, the accountancy firm have warned the UK’s companies that they will need to slash operating costs by up to a third to remain competitive in a market where Brent Crude has slumped since June. Their analysts have recognised that this will put significant pressure on the UKCS.

PwC have warned the market that firms will ultimately conclude that increasing numbers of oil fields in the UKCS simply are not economic and move to divest them or decommission them. An increase in the number of company acquisitions is also expected as struggling offshore operators are taken over by stronger players.

The analysts believe that the government will need to act quickly and decisively in implementing necessary tax reforms to support Britain’s oil industry to meet these challenges.

The over-riding message to firms facing these difficulties, however, was to take a measured and thoughtful approach to prevent problems becoming more entrenched over the longer term. The firms were warned particularly of repeating past errors, such as the extensive redundancies that were made by operators in 2000 and which ultimately led to problems with later skills shortages.

Kevin Reynard, from PwC Aberdeen, said that such sweeping redundancy programmes today could effectively remove huge swathes of operational knowledge from the UKCS and alienate critical suppliers who have their own sector expertise. He added that these actions would ultimately damage those business directly, as well as the industry’s overall viability.

The warning comes after a series of oil companies announced significant staff layoff plans when the price of Brent Crude dropped last summer. Only last month, Talisman Sinopec and BP confirmed that they would be laying off 300 workers in Aberdeen.

PwC challenged firms to seek out possible opportunities in the face of adversity and recognise that the prospect of a $50 barrel of oil could simply become the new norm. The accountancy’s director of oil projects, Brian Campbell, said that it certainly wasn’t too late for the industry to ‘glean some positivity’ from the challenging circumstances and for operators to work together and create a fresh start for the UKCS.

PwC have also said that there will be opportunistic bids and distressed sales occurring now in the market for firms with inoperable financing structures but strong underlying asset bases. This may lead to the first hostile takeover in the industry for many years, but it also signals a challenge to operators wishing to thrive in the new world.

His advice to firms was that they should revisit their operational strategies to seek out opportunities to capitalise on the North Sea’s changes, such as by proactively considering merger and acquisition opportunities and by divesting themselves of non-core assets. He has also recommended that firms seek out opportunities to collaborate with their supply chains and invest in technological changes that give them a greater competitive advantage.

Last updated on 10:57AM - 02/03/15