Jobs threatened as North Sea oil projects collapse

The full impact of the collapse in oil prices is yet to make itself felt as North Sea operators delay or cancel projects, according to a stark new warning.

Experts fear that the next six to 12 months will be critical for the survival of oilfield companies. Picture: AFP/Getty Images

Experts fear that the next six to 12 months will be “critical” for the survival of oilfield services companies and those further down the supply chain amid efforts to cut costs across the industry.

Although there have been relatively few insolvencies in the oil and gas sector since Brent crude prices tumbled at the end of last year, KPMG said there were increasing signs of distress in the market at the “ripple effect” of cost reduction measures begins to spread.

Geoff Jacobs, pictured, restructuring director at the accounting firm, said the low oil price has “serious implications” for oil explorers and producers, which have so far borne the brunt of redundancies.

In recent months, Shell said it planned to reduce the number of staff and agency contractors who support its UK North Sea operations by at least 250 this year, while Abu Dhabi oil company Taqa said it would be cutting about 100 North Sea onshore positions, although industry leaders have said the outlook would have been gloomier had George Osborne not unveiled a £1.3 billion package of tax breaks in March.

However, offshore engineer Subsea 7 last month announced “regrettable” plans to axe 410 jobs in the UK following a downturn in activity triggered by falling prices, while Aberdeen-based dredging specialist X-Subsea fell into administration at the end of April, triggering 26 redundancies.

Meanwhile, North Sea explorer Trap Oil has warned that it could run out of cash early next month and is “urgently” considering a range of options, including the sale of licence stakes, as it seeks to ward off collapse.

The Aim-quoted firm’s only producing asset is the Athena oil field, in which it has a 15 per cent stake. Trap said in February that it was losing about £380,000 a month from the field, about 110 miles north-east of Aberdeen, due to the low oil price, and is now in talks with potential investors, but has stressed that “there can be no certainty that a viable funding solution will be forthcoming”.

Confidence among the UK’s oil and gas explorers has sunk for the third quarter in a row, with the latest business sentiment index published by industry body Oil & Gas UK falling further into negative territory during the first three months of this year as explorers struggle with historically low oil prices.

Jacobs said: “We are now really seeing the impact of the oil price decline extend down the supply chain affecting not only oilfield services companies but also impacting businesses across Scotland not necessarily perceived as being within the oil and gas sector.

“Businesses that supply into or are dependent upon the sector are beginning to suffer as activity levels decrease generating less revenue for many businesses across the north of Scotland.”

With lenders carrying out a fresh round of checks on their exposure to potentially stressed businesses, Jacobs urged firms to take “positive action” as soon as possible to assess the risks.

“Perceived loss of control may see financial stakeholders impose onerous conditions and information requirements, distracting management from the critical day job of running the business,” he said.

“Businesses of all sizes are caught up in the ongoing impact of the oil price collapse and will require a range of support to overcome the challenge that they are already experiencing or anticipate in the next six to 12 months.”