North Sea oil companies are running out of time.
That’s according to Scotland’s first minister Nicola Sturgeon, other politicians, oil industry groups, and companies.
Already, BP and a range of other energy giants cut jobs and investment in the sector as oil prices still remain starkly lower than the triple digit highs of June 2014.
So, despite the Scottish National Party’s (SNP) line that any talk about dwindling North Sea reserves was “scaremongering,” Sturgeon begged Britain for tax breaks.
“I believe that North Sea oil is a fantastic asset for Scotland and will continue to be so for decades to come,” said Sturgeon in a press statement.
“There are up to 24 billion barrels of oil and gas equivalent remaining, and it is essential that we have a stable and proportionate fiscal regime which encourages the investment, innovation and exploration required.”
He added: “But we need action now from the UK government to help ensure we maximise future production and economic recovery. Quite frankly, the UK government has failed to address the exploration problem in the North Sea.”
The UK Treasury is pegged to unveil a series of tax breaks for the North Sea oil industry when Chancellor George Osborne delivers his budget statement on March 18.
The touted tax breaks include Britain alleviating the tax pressure on the energy groups in order for companies to remain profitable and to stop further job and investment cuts.
The measures include abolishing the 30% supplementary corporate tax for oil companies, as well as the 30% basic rate for the oil industry temporarily.
But Sturgeon and industry groups warned that these tax breaks need to happen no matter what.
Prior, to the Scottish referendum on September 18 last year, SNP’s leader at the time Alex Salmond and Sturgeon said there was 24 billion barrels of oil left in the North Sea.
While this number is low, former oil executive Sir Ian Wood said that there is actually only 15 billion to 16.5 billion barrels of recoverable oil left in the North Sea.
In October last year, BP and GDF Suez said it discovered a new oil field 150 miles east of Aberdeen in the UK Central North Sea area.
While the SNP touted this as a boon, experts warned that the amount of extractable oil and at what flow rate, was still unknown.
The National Institute of Economic and Social Research (NIESR) points out that North Sea contributes around £10 billion to the Scottish economy.
However, Bank of England Governor Mark Carney warned that the oil price plunge alone is estimated to hit Scottish GDP by £6 billion over the next year, as around two thirds of the industry’s profits and employment are borne in Scotland.
Last year, OPEC laid out how the North Sea oil industry is in dire straits. The average oil output in 2013 from the North Sea clocked its lowest level since 1977.
The Office of Budget Responsibility also showed production forecasts and outturns for North Sea oil continue to drop dramatically:
Oil price crash
Meanwhile, the oil price plunge over the last eight months exacerbated the problems the industry already has.
In 2012 and 2013, oil prices averaged $US100 per barrel. In the summer of 2014, oil averaged $US115 per barrel:
Industry body Oil & Gas UK and Scottish politicians called for action over helping North Sea energy groups to survive when prices were slipping below $US60 per barrel.
“Britain’s great oil and gas industry has over the last four decades overcome challenging geology and volatile commodity prices to provide hundreds of thousands of high skilled jobs, generate hundreds of billions of pounds in tax revenues and foster innovation,” said Malcolm Webb, CEO of Oil and Gas UK in a speech at an oil summit on February 2.
“However the inconsistent and unpredictable government policy it has faced, now combined with sharply rising costs and a sudden drop in oil price, has dealt a blow which is doing real and potentially long-lasting damage.”
Only two months beforehand, another major oil figurehead warned that “it’s almost impossible to make money at these oil prices. It’s a huge crisis.”
Brindex chairman Robin Allen said those comments when oil prices were at just under $US70 per barrel. The March crude oil contract is still only around $US53.40 per barrel.
“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,” he added.
“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. Budgets for 2015 are being cut by everyone.”