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The fall in oil prices over the last few months has been a welcome relief to car owners but the UK oil industry has warned that it is in crisis as prices continue to drop.
Service providers and oil companies are not taking on any new workers and are looking at cutting staff and investment.
The outlook for North Sea oil isn’t good. Much of the oil in the North Sea now involves deep sea drilling which isn’t profitable if oil falls below a certain level. Chairman of the independent explorers’ association Brindex Robin Allan said that no new projects in the North Sea are profitable with oil below $60 a barrel.
He said the industry would adapt but the process would involve job losses and reducing costs wherever possible. Speaking to the BBC he said there wouldn’t be any new investment and budgets for 2015 were being cut.
Big oil companies are already cutting jobs including ConocoPhillips which is cutting 230 jobs in the UK and announced a 20% reduction in worldwide capital expenditure budget.
Service providers including Schlumberger are also being affected by the fall in oil prices. Schlumberger recently cut back on its UK based fleet of geological survey ships, which resulted in an $800 million loss. The company is also reducing new recruitment and cutting a number of jobs. However, the company has also just won a big contract with Statoil providing drilling and well services off the coast of Shetland.
North Sea oil production has been in decline for a number of years now and earlier this year Opec (Organisation of the Petroleum Exporting Countries) warned that output from the North Sea could drop to an average of 800,000 barrels a day. Almost two years ago investment in the region was at its highest for 30 years with expectations that this would increase especially when the government introduced tax incentives to boost investment in difficult projects.
The fall in oil prices has put this new investment in doubt and could prove to be a huge setback for North Sea oil. However, Sir Ian Wood, a leading figure in the oil industry, believes prices will stay around $60-$65 a barrel for the next 18 months or so and then recover. Warnings that the oil industry is close to collapse are too dramatic he says although he does admit jobs will be lost over the coming months.
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