Sector News

Ministers urged to help North Sea oil ‘on brink of collapse’

December 19, 2014
Scottish and UK ministers have been urged to head off a “huge crisis” in the North Sea amid warnings that it is on the brink of collapse thanks to plummeting oil prices.
Kezia Dugdale, Scottish Labour’s new deputy leader, highlighted a series of expert warnings that tens of thousands of jobs are at risk after the oil price nosedived to a level near or below the cost of extracting it.
During fiery exchanges at Holyrood, she accused Nicola Sturgeon of being unprepared to deal with the situation as the First Minister admitted she is not due to meet Malcolm Webb, the head of trade body Oil and Gas UK, until January 14.
The First Minister told MSPs she supported the industry’s demands that the UK Government cut taxes, introduce greater support for exploration and take action on a proposed new investment allowance.
But Ms Dugdale said Ms Sturgeon already had control over six policy areas, including onshore business rates, which could help North Sea companies survive.
She suggested the Scottish Government’s failure to respond quickly enough was because the First Minister had been taken in by the SNP’s “wishful thinking” about oil prices remaining at $110 per barrel.
In August this year, about three weeks before the independence referendum, Ms Sturgeon claimed Scotland was on the “cusp of a second oil boom” during a visit to Shetland.
The exchanges at Holyrood took place after one of the industry’s foremost experts said the industry is “close to collapse”.
Although Brent crude, the global pricing benchmark, rose to $62 per barrel yesterday, it has lost around 45 per cent of its value since June amid concerns about global oversupply.
Robin Allan, chairman of the independent explorers’ association Brindex, told the BBC: “It’s almost impossible to make money at these oil prices. It’s a huge crisis.
“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.”
Ali al-Naimi, Saudi Arabia’s oil minister, has said the price drop is temporary and he is hopeful for the future.
But the intervention by Mr Allan, who is also a director at Premier Oil, echoed warnings last week by Sir Ian Wood, another of the industry’s most eminent figures, that ten per cent of jobs could go.
A study by Oil and Gas UK has predicted 35,000 jobs could be lost over the next five years. The Wood Group, the company Sir Ian founded, is among those that have announced a pay freeze and a cut in contractor rates.
ConocoPhillips is cutting 230 out of 1,650 jobs in the UK, Goldman Sachs has predicted big oil firms will have to cut capital expenditure by 30 per cent to restore their profitability and Schlumberger has reduced its UK-based fleet of geological survey ships.
Speaking at her first First Minster’s Questions since becoming deputy leader, Ms Dugdale said Scottish Labour would support Ms Sturgeon’s efforts to get the UK Government to offer more help.
But she said the Scottish Government has control over onshore business taxes, support to find new markets, skills and training, research and development, supporting infrastructure and diversification into renewables.
“What assurances can the First Minister give oil workers and their families that their jobs – what security do they have this Christmas from this Government?” she asked, arguing that a thousand posts had already gone.
With Jim Murphy, the new Scottish Labour leader, watching from the public gallery, Ms Dugdale said: “Isn’t it the truth that the Scottish Government just didn’t see this crisis coming, because they believed their own wishful thinking about oil prices?
“Surely we cannot have a First Minister so unprepared, so unsighted on such a key industry. First Minister, there are tens of thousands of jobs at stake, you need to be able to tell the Scottish public why you got it so wrong in the past, so that you can get it right in the future.”
She said the oil industry’s training academy is “desperate” for Scottish Government support to invest in skills to make sure that if the oil price rises again, people will be available to work in the sector.
Ms Sturgeon said the SNP administration had set up the academy more than two years ago and Fergus Ewing, the Scottish Energy Minister, was in regular contact with Oil and Gas UK and industry leaders.
She said the industry wants Scotland’s political leaders to unite around demands that the UK Government further reduces a supplementary charge on oil and gas profits, which is being cut from 32 per cent to 30 per cent on January 1.
“I think that those whose jobs are under threat right now look at us and want to see us coming together in that way, not having a party political ding-dong,” she said.
Oil and Gas UK said “the falling oil price is affecting activity across the UK Continental Shelf and companies are having to take hard decisions in light of this challenging business environment.”
A spokesman for the UK Department of Energy and Climate Change admitted the sharp drop in oil prices was “very challenging” for North Sea companies but insisted there was “very little evidence” of new projects being cancelled or deferred.
A Scotland Office spokesman said: “The package of allowances and tax reliefs unveiled as part of the Autumn Statement were the result of our close and productive working relationship with the oil and gas sector in this country. This level of support is only possible because we can draw on the combined strength and resources of the United Kingdom.”
By Simon Johnson

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