Trapoil, Tullow losses underscore oil plight

NORTH Sea driller Trapoil underlined the difficulties facing the sector yesterday as it announced that it was incurring heavy losses at its major operating field.

Tullow and Trapoil woes underscore flagging North Sea oil industry. Picture: Contributed

Meanwhile, fellow drilling firm KCA Deutag said 500 jobs were at risk due to declining crude prices, while Tullow Oil sank to a $2 billion (£1.3bn) loss.

KCA plans to cut 30 onshore roles in Aberdeen, as well as 200 North Sea positions, after two clients put drilling work on hold. It is also seeking to reduce pay by 5 per cent “to maintain competitiveness while protecting as many jobs as possible”.

Aim-quoted Trapoil, which has a 15 per cent stake in the North Sea’s Athena field, said: “At the currently depressed oil price of approximately $58 a barrel the field is significantly loss-making and the company is currently incurring a cash outflow of approximately £380,000 per month after absorption of its share of the field’s operating costs.

“We are working closely with the operator and our other licence partners to advance opportunities to enhance the financial performance of the field.”

The firm also said it was relinquishing its Orchid licence, “which was becoming unduly expensive to maintain”. It follows Trapoil’s withdrawal of a number of other UK licences last month.

“The decision to relinquish this additional licence was taken in conjunction with our partner following extensive efforts to secure a potential farm-out.”

Analysts at SP Angel suggested Athena would be shut down until the oil price recovers. They said: “Whilst it is a little bit of a surprise to learn that Athena is losing as much money on a monthly basis as it is, on reflection it is hardly a surprise, given the extent to which the oil price has declined.

“What is now the key question is whether the company, once it has shut the Athena field down, has sufficient cash to meet its obligation expenditures until such times as it can restart Athena.

“Given our outlook for the oil price, which we believe will recover toward $75 a barrel by the end of 2015, we believe that as long as management is prudent and cuts costs as far back as possible, that once Athena has been shut down and put on care and maintenance that there should be sufficient funds to weather the storm.”

Meanwhile, FTSE 100 firm Tullow Oil scrapped its dividend in the face of heavy losses last year, although these did not all stem from the declining price of crude.

The company was well hedged on last year’s production but has incurred large write-offs on its exploration programme.

It unveiled plans to save $500 million over the next three years through reductions in capital expenditure, operating costs and administrative expenses.

The firm’s reduced investment plans will now be targeted at its relatively cheap onshore East African portfolio and tax-efficient Norwegian wells.

The updates came as a trade gathering of the UK’s subsea engineering sector, which supports 60,000 jobs, was warned that the industry is in for two years of tough times and will only weather the storm if it embraces innovation and new technology.

On the opening day of Subsea Expo the chief executive of Subsea UK Neil Gordon said: “Swingeing capex cuts and low crude price are beginning to bite.

“The existing order book kept the industry going but, as this dries up and projects are abandoned or postponed until the oil price recovers, we are in for major challenges.”