North Sea oil driller on brink of insolvency

Picture: PA
Picture: PA
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THE slump in oil prices looks set to claim its highest-profile victim after a North Sea drilling firm warned it was facing collapse unless it can bring in urgent funding.

Trap Oil, which is quoted on London’s Alternative Investment Market, said yesterday it was “highly likely” to run out of cash within three months as a result of “depressed” Brent crude prices, which have tumbled by about half since last summer.

In our view it is unjust that such companies are subject to ring-fenced corporate tax and supplementary charge

Uisdean Vass

The company’s only producing asset is the Athena oil field, in which it has a 15 per cent stake. The company said in February it was losing about £380,000 a month from the field, about 110 miles north-east of Aberdeen, due to the low oil price. In a bid to cut costs, it has trimmed its workforce to about 13 people, from 16 a year ago.

Its alert came as the firm posted wider losses of £44.4 million for 2014, compared with £10.3m a year earlier, and said it had only enough working capital to support its activities until July.

Analysts at investment bank SP Angel Corporate Finance said: “The question should now be whether the management team could have better managed the current oil price environment.”

Trap Oil said: “In the absence of a viable funding solution, the board considers that it is highly likely that the company will become insolvent, and appropriate insolvency proceedings, such as administration or liquidation, will consequently need to be commenced.”

The warning came as a survey showed 82 per cent of those working in the North Sea do not believe the next UK government – of whichever party – to be formed after the general election will do enough to solve the crisis.

The study of 1,000 staff was commissioned by recruitment website Oil & Gas People, whose chief executive Kevin Forbes said: “Our state-of-the-industry report shows that oil and gas workers are losing confidence in all political parties to prioritise and fix the issues in the industry.”

Amid the slide in Brent prices, hundreds of jobs have already been axed by companies, including BP, Shell and Taqa, but industry leaders have said the outlook would have been gloomier had George Osborne not announced a £1.3 billion package of tax breaks in his Budget last month.

Sir Ian Wood, who led a government-commissioned review into squeezing the most out of the North Sea, said Mr Osborne’s move had provided an “essential lifeline” for an industry that employs about 380,000 people.

He warned that further job losses were inevitable, but these would be in the range of 5,000 to 10,000 – having previously said up to 100,000 roles were at risk over the next two to three years.

However, an energy expert from law firm Bond Dickinson last night said the current taxation model for independent offshore infrastructure owners was “unfair and counter-productive”.

Uisdean Vass said: “In our view it is unjust that such companies are subject to ring-fenced corporate tax and supplementary charge even though they never see the upside of a single barrel of crude oil. If we are to encourage the growth of these companies they need to be subject to regular corporate tax.”