Robin Allan, chairman of the independent explorers’ association Brindex, said new investment is being choked off after prices sunk to $59 from about $110 a few months ago.
Hundreds of jobs have been axed in recent months and thousands more are on the line, as firms desperately cut costs deal with tumbling prices.
Mr Allan said yesterday that almost no new projects in the North Sea are profitable with oil below $60 a barrel.
“It’s a huge crisis,” said Mr Allan, who is a director of Premier Oil.
“This has happened before, and the industry adapts, but the adaptation is one of slashing people, slashing projects and reducing costs wherever possible, and that’s painful for our staff, painful for companies and painful for the country.
“It’s close to collapse. In terms of new investments – there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks. Budgets for 2015 are being cut by everyone.”
Mr Allan said many of the job cuts across the industry would not have been publicly announced.
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Oil workers are often employed as contractors, which are easier for employers to cut.
Aberdeen-based Wood Group PSN this week announced a 10 per cent cut in rates of pay for contractors and a pay freeze for other staff, while Apache, one of the North Sea’s biggest producers is also to impose a 10 per cent reduction on its contractors’ wages.
Goldman Sachs predicted big oil firms would have to cut capital expenditure by 30 per cent to restore their profitability and Schlumberger cut back its UK-based fleet of geological survey ships.
Oil prices have been falling over the past six months as a result of weak demand in many countries due to insipid economic growth, coupled with surging US production.
But accountants PricewaterhouseCoopers (PwC) said the falling oil price “should be a net benefit to our economy as a whole, even if there are some losers in the UK oil and gas sector and in particular places like Aberdeen”.
PwC chief economist John Hawksworth said: “In essence, an oil price fall acts like a tax cut for the economy, but a particularly favourable one in the sense that the burden of lost revenue is primarily borne by the major oil producers such as the Opec member countries and Russia.
“Of course, the UK is still a significant oil producer, but we are now a net oil importer, so there should be a net benefit to our economy as a whole, even if there as some losers in the UK oil and gas sector (and in particular places like Aberdeen).
“As an illustration, in our shale oil report from February 2013, we estimated that a $50 dollars (£32) fall in the oil price, if sustained, could lead to the level of UK GDP being around 3 per cent higher in the long run.”
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