Comment: North Sea bleeding sign of things to come

Martin Flanagan. Picture: Fiona Hanson/PA
Martin Flanagan. Picture: Fiona Hanson/PA
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THE 350 North Sea job losses announced by oil companies Shell and Taqa show that, while George Osborne’s relaxation of the fiscal regime in the Budget mitigated the industry’s pressures, it has not removed them. That was never going to be the case, as the oil price slide is a macro issue, not a purely UK one. It was never in the Chancellor’s gift.

As the slump in crude prices since last summer renders a sizeable slice of North Sea production uneconomic, we are likely to see more of this jobs bloodletting affecting Aberdeen, the oil rigs and wider region. Shell says it will cut 250 staff and agency contractor jobs this year, on top of the 250 it announced last August, at around the time the gradual fall in the oil price turned into a downward spiral. Taqa says the “challenging” North Sea operating environment means it will get rid of 100 onshore positions, mainly involving contractors and oil consultants.

Oil is now trading at just under $60 a barrel, having at one point gone below the $50 level widely seen as making one-fifth of UK oil production not worth the candle for the industry.

With no sign of any early lift in the price, cost analysis of any new investment in the ageing North Sea fields will be even more rigorous than it has been over the past couple of decades. As a result, simple arithmetic suggests projects that do go ahead will be fewer in number, and in the wake of that, redundancies are nearly always the unfortunate corollary.

BP and Chevron are two other major players that have cut jobs against the backcloth of the oil price tailspin.

The industry welcomed Osborne’s understanding that the rules of the game had changed, and he had to move on fiscal reforms of North Sea supplementary taxes or avoid deep damage to the sector. But it also knows that the Budget move was only a step in the right direction, and deeper, painful, self-help measures were also unavoidable to sustain a presence in the region.

Safety in an inherently risky industry must remain paramount amid these structural and people cuts. Even if more flexible working practices may well have to be looked at as part of the energy industry’s response, this must not stray into dangerous areas of undermanning, particularly on the oil rigs themselves.

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