The tumbling oil price has led to a collapse in profits for British oil companies in the North Sea, where losses for the last year have risen above £6bn, according to an analysis for the Financial Times.
As the price of oil has fallen to its lowest in more than a decade, losses and debts have mounted at some of the world’s biggest and previously most profitable companies. British companies in the North Sea, which have helped power the UK economy since 1970, are particularly stretched thanks to the high costs of doing business there.
The study, carried out by Company Watch, shows that half of the 22 UK-listed companies with operations in the North Sea are making losses, and that in the last reported 12 months those losses add up to £6.4bn.
Separate figures from Wood Mackenzie, the energy consultancy, show companies have halted the production of 100,000 barrels a day of oil worldwide, and another 3.4m barrels is being produced at a loss.
The findings come after a week when some of the world’s biggest oil companies unveiled some of their worst-ever results, as the effects of the drop in the oil price ripple through the sector. Brent crude has fallen from $115 per barrel in the summer of 2014 to $35 now.
BP, the UK oil major, announced this week it lost $5.2bn (£3.6bn) in 2015 — its worst annual loss ever. ExxonMobil, the world’s largest oil company, announced a 58 per cent drop in profits and a 25 per cent reduction in capital spending for the next year.
But the impact is being felt particularly acutely among companies working in the North Sea, one of the world’s most mature oilfields and also its most expensive. While costs have come down steeply in the past 12 months, producing oil off the British coastline remains more expensive than anywhere else, thanks to relatively high tax and staffing costs as well as strict safety laws.
David Round, an analyst at BMO Capital Markets, said: “Companies are successfully bringing down costs but the North Sea remains one of the most expensive regions for companies to work. This means that operators are struggling — cash flows are drying up, losses are mounting and debt levels are soaring.”
Ewan Mitchell, head of analytics at Company Watch, which evaluates the financial health of companies, said: “Five years ago, the oil and gas sector was one of the most financially secure in corporate Britain. Today it is one of the weakest, with more and more companies becoming distressed.
“Half are now making losses and debt levels are rising. We wouldn’t be surprised if some of the smaller companies go bust before the end of the cycle.”
Company Watch’s figures show that as the oil price has dropped, companies have taken out increasing amounts of debt to keep themselves funded, leading to concerns about how many can survive the downturn. Five years ago the total debt at companies with North Sea operations was £63bn; today it is £92bn.
At the smaller end of the market, debts have built up even faster. Excluding the three big London-listed operators — Shell, BP and BG Group — net debt has increased by a factor of nearly six, to £7.6bn.
Ministers are scrambling to find ways to rescue the stricken industry, concerned that if companies try to save costs by closing oilfields early they will never be able to afford to reopen them again. Last week David Cameron, the prime minister, travelled to Aberdeen, the centre of the UK’s offshore oil industry, to unveil a new £250m support package that included a centre to help develop new technology.
Tony Durrant, the chief executive of Premier Oil, one of the largest independent exploration and production companies in the region, called for regulators to be allowed to step in to protect vital pieces of infrastructure.