The number of insolvencies of UK oil and gas services companies has trebled in the last year, and the sudden plunge in crude prices is creating financial stress across the sector, according to figures published today.
Accountancy and consultancy firm Moore Stephens said 18 businesses became insolvent in the 12 months to 30 September, against just six the year before.
Although the increase is from a low base, the firm said it was significant as insolvencies in the sector have been rare over the last five years.
It said it was “remarkable” just how quickly the slump in oil prices was translating into business distress – Brent crude prices only started dropping in the summer, going from a peak of more than $110 a barrel in June to just over $60 today.
The slump has accelerated in recent months, especially since the end of the period covered by Moore Stephens’ data, suggesting today’s figures may be the tip of the iceberg.
Jeremy Willmont, head of restructuring and insolvency at the firm, said: “The fall in the oil price has translated into insolvencies in the oil and gas services sector remarkably quickly.
“The oil and gas services sector has enjoyed very strong trading conditions for the last 15 years, so perhaps they have not been quite so well prepared for a sustained deterioration in trading conditions as other sectors would have been.”
Although there was a sharp drop in the oil price during the financial crisis, the sense that crude could be depressed for some time is much more widespread this time around, he said.
“Oil and gas majors are already cutting costs. Both Shell and BP have recently announced cuts to investment in a number of major projects. Smaller players are also reconsidering their capital deployment. If this retrenchment continues, the result will be less work for oil and gas services companies.
“Oil and gas services companies have been a real success story for the UK in the last decade. Aberdeen has turned into one of the UK’s economic hotspots, so it would be a grave concern if insolvent businesses in the sector cannot be rescued by restructuring.”
Oil and gas services firms working on harder-to-extract deposits are likely to be hardest hit, as projects are rendered uneconomic by falling oil prices.
Earlier this month, trade body Oil & Gas UK warned that 35,000 jobs could be lost in the sector.
And yesterday a report identified £55 billion worth of European oil and gas projects that were currently in the pipeline but not yet signed off – and said the deals may be pulled because of the lower oil price.
Consultancy Wood Mackenzie said many projects in the North Sea, as well as continental Europe and the Mediterranean, were particularly at risk because they had a “break even price” of more than $60 a barrel.
Company valuations in the sector have plunged in recent months, and analysts believe many smaller players may now be taken over. Among those circling, Spain’s Repsol is said to be preparing a bid for North Sea operator Talisman.
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