Exploration has been cut right back, jobs are being slashed, operators are going bust and there is no relief in sight
The sun sets on North Sea drilling: companies are expected to bore just six exploration wells this year — the lowest number since 1964 (Alamy)
A desperate situation can sometimes be best summed up by numbers.
Here’s one that neatly captures the effect the oil price crash has had on the London market. The combined market value of 112 publicly traded oil companies — the entirety of Britain’s listed industry excluding the top three of Shell, BP and BG — is the same as that of Marks & Spencer: £7bn.
Two years ago, just one of the 112 — Tullow Oil — was worth more than Britain’s preferred seller of sandwiches and underwear, with a healthy £8.2bn market value. Its fall has been stunning. As the numbers above attest, it is but one of many.
The primary culprit for this collective capsize is the oil price. Brent crude has plunged 70% from $115 in the summer of 2014 to $33 a barrel last week amid a prolonged price war between Saudi Arabia, the world’s largest producer, and American shale drillers. Such a dramatic collapse in the value of the only product these companies sell has, predictably, wreaked havoc.
The problem is that as 2016 begins many companies that clung on by their fingertips last year, hoping to ride out the storm, are finally buckling as the global glut of crude deepens.
In the North Sea this has led to a disastrous contraction, threatening an industry that employs more than 375,000 people and was, until recently, one of the richest sources of tax revenue for the exchequer.
Last year the Office for Budget Responsibility predicted that 2016 tax revenue would fall to £600m, a 95% drop from the £12.9bn generated for the exchequer in 2009. Even that low figure may prove optimistic.
Already, 65,000 jobs have been lost. The government’s Oil and Gas Authority (OGA) has launched an array of programmes to jolt the sector into life, from carrying out seismic analysis of new frontiers to forcing owners of pipelines to open their infrastructure to smaller developers. OGA chief executive Andy Samuel said: “Our role as an urgent catalyst for change is more significant than ever.”
The results have, so far, been negligible. According to specialist consultancy Hannon Westwood, companies are expected to drill just six exploration wells this year. That would be the lowest number since 1964, when the UK Continental Shelf Act threw open the region to explorers. The previous low was 13, set last year. The drilling drought means that as decades-old fields run dry, there will be few new projects to replace them, pushing the North Sea closer to terminal decline.