North Sea oil industry risks collapse as energy prices fall

© Darrin Zammit Lupi
The North Sea oil industry is at “serious and urgent risk” of being abandoned as major energy firms put off projects due to the oil price slump, according to the UK's Oil and Gas Authority (OGA).

The energy companies operating in the area should join forces to become more efficient and to fundamentally change some of their working practices to sustain the industry, the head of OGA, Andy Samuel told the Financial Times on Monday.

Samuel, who’s in charge of reviving the sector, warned of a possible “domino effect”, when one company leaves an area of the North Sea, and others have to share more of the cost of maintaining infrastructure. While in some fields several companies share the cost of pipelines and processing plants, it will be impossible for them to bear those costs if one or more of them leave.

The head of OGA said that “whole areas of the continental shelf” could be shut down if critical infrastructure is decommissioned too soon. Joint arrangements where one oil producer helps another are, however, difficult to be agreed while companies are competing with each other, Samuel added.

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The North Sea oil industry has been hit hard as crude prices plunged more than 50 percent since last June. From January to March this year, government revenues plunged 75 percent to £168 million, with more than 5,000 jobs lost in the sector, according to the OGA.

The world’s top energy firms have put off $200 billion in spending on 46 major oil and gas projects due to the oil price slump, energy consultancy Wood Mackenzie reported in July.

North Sea operators such as Shell, BP, Chevron and Taqa have cut jobs and investment over the weak oil price, in addition to postponing projects. Shell cut 6,500 jobs and reduced capital spending by 20 percent. In July, BP lowered its expected full-year capital spending to below $20 billion after cutting it by 13 percent earlier this year.

READ MORE: Shell cuts 6,500 jobs & investment by 20% over weak oil

The UK government has offered companies a number of new tax breaks, but has also urged energy companies to work together, trying to sustain the vital industry. The Oil and Gas Authority was established in April with the task of maximizing the recovery of oil and gas from the region.

“It is important that the government and regulators understand that if you lose one company, that will have an impact on the others because of infrastructure costs,” Amjad Bseisu, chief executive of EnQuest, one of the independent operators in the North Sea, told the FT.

There are up to 23 billion barrels of oil and gas still to be recovered from the North Sea, according to the OGA.