Recession drills deep into oil and gas

Industry in crisis
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Job cuts have been the dominant theme in British business over the past three months. And the energy sector has been one of the most badly hit industries as a result of the volatile oil price.

At the end of October, BP chief executive Tony Hayward warned that "productivity and efficiency" drives would result in "materially higher" redundancies than the 5,000 the company had already announced. One former BP executive says there is anecdotal evidence that BP is pushing through an early retirement programme, citing five friends who have recently taken up the scheme. BP denies there is an emphasis on early retirement, but there is little doubt that oil and gas companies will in the short term replace few staff who leave in the next few months.

Among the hardest hit will be contractors that provide services to oil and gas firms. For example, Senergy is understood to have been developing a $19m (£13m) oil well for Stratic Energy, but was told "to finish the top part of the well, plug it up and walk away", according to a source, as the rig cost up to $350,000 a day to operate. Senergy chief executive James McCallum was not available for comment.

Schlumberger, the world's biggest oilfield services company, said it was looking to cut 1,000 jobs in North America – about 5 per cent of staff.

Last week ConocoPhillips, a 134-year-old energy company, said that it was cutting 1,300 jobs, approximately 4 per cent of its workforce.

Oilexco North Sea, the Aberdeen-based explorer, went into administration earlier this month. Ernst & Young, one of the so-called "big four" accountants, has been appointed administrator. Investment banks Morgan Stanley and Merrill Lynch are looking for buyers.

A senior oil industry figure said banks working in the sector had warned him that every company was undertaking "budget-cutting exercises" to combat the falling oil price. In July, oil was close to $150 a barrel, but is less than one-third of that today. "A lot of oil and gas companies are tightening their belts and contractors are being laid off and consultants cut as a result," added the source.

In a further sign that the oil and gas market is suffering, advisory firm Tristone Capital has cancelled its second global energy conference in Paris later this year. The company said: "Due to the current global economic volatility, and an overwhelming response from our clients indicating restricted travel budgets, Tristone will be postponing its energy conference in Paris as originally planned for this May and will look to continue this programme in 2010."

Last year the conference had nearly 100 corporate presenters and more than 200 institutional investors.