North Sea oil fields are on the verge of losing money for every barrel they produce, according to a survey of industry forecasters carried out by The Independent.
Future exploration, investment and tens-of-thousands of jobs are all said to now be under threat from falling global oil prices, with up to a third of the North Sea already nearing loss-making territory.
There have been calls for a 50 per cent cut in North Sea taxes as 100 fields were said to be in danger of closing as the crisis deepened.
Oil and Gas UK (OGUK), the voice of the offshore industry, predict that if oil prices plummet towards $40 and below, only major companies such as BP and Shell will be left producing in the North Sea at ultra-thin levels of profit.
“Some companies are paying 80 per cent as the highest tax rate on fields in the North Sea” said OGUK head Malcolm Webb. “We would like to see 30 per cent as the top tax rate and our industry treated as the same as any other.”
Today, BP announced that it was responding to “toughening market conditions” by cutting 300 jobs from its 3,500-strong North Sea workforce, reducing contractors pay and implementing wide-ranging cost-cutting measures.
To many in the industry, it suggests much worse lies ahead.
Tullow, with production interests in 28 countries, is also among firms expected to announce job cuts to its North Sea operations.
Cairn, who operate deep-water wells in the Atlantic Basin off Senegal, are also predicted to opt for investments in Africa and defer its North Sea plans.
In Aberdeen this week a private seminar of industry experts concluded that: “No one knows how dire the situation is going to get, or at what price companies in the North Sea will be left operating with ‘negative cash flows’”. A company spokeswoman said “no one had any answers.”
In pictures: Changing climate around the world
In pictures: Changing climate around the world
Calved icebergs from the nearby Twin Glaciers are seen floating on the water in Qaqortoq, Greenland
Oroumieh, one of the biggest saltwater lakes on Earth, has shrunk more than 80 percent to 1,000 square kilometers in the past decade. It shrinks mainly because of climate change, expanded irrigation for surrounding farms and the damming of rivers that feed the body of water
A boat navigates among calved icebergs from the nearby Twin Glaciers in Qaqortoq, Greenland. Boats are a crucial mode of transportation in the country that has few roads. As cities like Miami, New York and other vulnerable spots around the world strategize about how to respond to climate change, many Greenlanders simply do what theyve always done: adapt. 'Were used to change, said Greenlander Pilu Neilsen. 'We learn to adapt to whatever comes. If all the glaciers melt, well just get more land
The Svalbard Global Seed Vault is seen after being inaugurated in Longyearbyen, Norway. The 'doomsday' seed vault built to protect millions of food crops from climate change, wars and natural disasters opened deep within an Arctic mountain in the remote Norwegian archipelago of Svalbard
A technician preparing to drain a vast underground lake at the Tete Rousse glacier on the Mont Blanc Alpine mountain, to avert a potentially disatrous flood. Some 65,000 cubic metres (2.3 million cubic feet) of water have gathered in a cavity, dangerously raising the pressure beneath the mountain, a favourite spot for holiday makers in Saint-Gervais-les-Bains
Cracked mud is picture at sunrise in the dried shores of Lake Gruyere affected by continuous drought near the western Switzerland village of Avry-devant-Pont. A leading climate scientist warned that Europe should take action over increasing drought and floods, stressing that some climate change trends were clear despite variations in predictions
Cattle graze on grassland that remains dry and brown at the height of the rainy season in south of Bakersfield, California. Its third straight year of unprecedented drought, California is experiencing its driest year on record, dating back 119 years, and dating back as far as 500 years, according to some scientists who study tree rings
An aerial view shows tents of flood-displaced people surrounded by water in southern Sehwan town. United Nations Framework Convention on Climate Change (UNFCCC) executive secretary Christiana Figueres met with people displaced by last year's devastating floods. Catastrophic monsoon rains that swept through the country in 2010 and affected some 20 million people, destroyed 1.7 million homes and damaged 5.4 million acres of arable land
An aerial view of flooding in North Wagga Wagga. Climate change is amplifying risks from drought, floods, storm and rising seas, threatening all countries but small island states, poor nations and arid regions in particular, UN experts warned
Damages caused by a landslide on the Pan-American highway near La Moramulca, 55 Km south of Tegucigalpa. International highways have been washed out, villages isolated and thousands of families have lost homes and crops in a region that the United Nations has classified as one of the most affected by climate change
A resident sprays water on a peatland fire in Pekanbaru district in Riau province on Indonesia's Sumatra island. Indonesia, an archipelago of 17,000 islands, is one of the world's biggest carbon emitters because of rampant deforestation. US Secretary of State John Kerry Sunday issued a clarion call for nations to do to more to combat climate change, calling it 'the world's largest weapon of mass destruction'
An excavator clearing a peatland forest area for a palm oil plantations in Trumon subdistrict, Aceh province, on Indonesia's Sumatra island. As Southeast Asia's largest economy grows rapidly, swathes of biodiverse forests across the archipelago of 17,000 islands have been cleared to make way for paper and palm oil plantations, as well as for mining and agriculture. The destruction has ravaged biodiversity, placing animals such as orangutans and Sumatran tigers in danger of extinction, while also leading to the release of vast amounts of climate change-causing carbon dioxide
Stagnant rain water with tannery waste make the Hazaribagh area in Old Dhaka as well as Buriganga River the most polluted. Each year during the seven-month long dry season between October and April the Buriganga River becomes totally stagnant with its upstream region drying up and becoming polluted from toxic waste from city industries
Waste water from Dhaka city drained to the River Buriganga contributes to its pollutions. On the World Water Day observed in 2007 under the theme Coping with Water Scarcity, under the leadership of the Food and Agriculture Organization of the United Nations, DrikNEWS explores some of the images of the river. UN-Water has identified coping with water scarcity as part of the strategic issues and priorities requiring joint UN action. The theme highlights the significance of cooperation and importance of an integrated approach to water resource management of water at international, national and local levels
Heavy smog has been lingering in northern and eastern parts of China, disturbing the traffic, worsening air pollution and forcing the closure of schools. China's Environment Ministry said it will send inspection teams to provinces and cities most seriously affected by smog to ensure rules on fighting air pollution are being enforced
World oil prices have fallen by 60 percent in the last six months, a catastrophic slide since last June when trading was above $115 a barrel. Previous global forecasts now look like fantasy maths.
The Anglo-Dutch giant, Shell, announced they are scrapping or deferring billions of dollars in planned projects, including a $6.5bn deal with Qatar. The Norwegian major, Statoil, said it was handing back three “frontier” exploration licences in Greenland.
For the North Sea, energy consultants Wood Mackenzie are forecasting that falls in overall production cannot be ruled out. Research analyst, Robert Plummer, said that at $40 or below for a barrel for Brent, production shut-downs would happen. That option would be drastic for mature fields in the North Sea who normally adopt a “use it, or lose it” strategy to produce oil at a loss rather begin high-cost decommissioning which can run to hundreds of millions of dollars.
However northing is normal in the North Sea at the moment. Mr Plummer said many North Sea fields were old, reaching the end of their viability, and at $50 a barrel, the UK was among 17 countries producing oil that was “cash negative” – losing money.
In 2008 Goldman Sachs predicted that crude oil would be operating for a lengthy period at $200 a barrel. Last week the US investment bank said the barrel-price of Brent, the North Sea’s category, was likely to fall below $40.
Alistair Winter, chief economist at the global investment bank, Daniel Stewart & Co, said: “I can see it [Brent Crude] go below $40, perhaps down to as little as $20. Marginal fields, often run by smaller companies, need around $60 a barrel for viability. But markets will already be “shorting” petroleum prices [betting on prices falling further to make profit] - and that points to bad news ahead for the North Sea.”
Mr Winter said the UK oil industry was a casualty of the production price war between OPEC [the Organisation of Petroleum Exporting Countries], dominated by Saudi Arabia, and the accelerating production levels of shale oil resources in North America. He added “OPEC countries need and want the current cash-flow from their oil. There’s little chance of a cut-back in supply any time soon. The North Sea is simply caught in the middle.”
Financial risk analysts, Company Watch [CW] , estimate that 70 percent of the UK’s publicly-quoted oil exploration and production companies are already suffering substantial losses. CW estimated their cumulative losses may already have passed £2 billion.
Smaller privately owned companies could be in even worse shape. Research by CW say accounts in this sector show accumulated losses of $12 billion plus.
The Department for Business, Innovation and Skills, recently forecast that 35,000 North Sea oil-related jobs could be lost over the next five years. That forecast was made before the current price slide. Cash-strapped small producers may have to defer planned investment over the next two years, or burn through cash reserves to help them survive the OPEC-US price war. Reductions in future investment could, according to analysts, push job losses beyond 50,000 – four times the jobs lost when British Steel abandoned Ravenscraig in 1992, still regarded as one of Scotland’s worst economic disasters
Alex Kemp, professor of petroleum economics at Aberdeen University’s Energy Research Centre, said the “panic button” in the North Sea oil industry may have been pressed, and there was “cause for concern” that planned new projects would be stalled and exploration budgets would be cut.Reuse content