UK oil and gas companies facing "triple whammy" threat

 
Jessica Morris
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Oil and gas companies have suffered amid falling oil prices (Source: Getty)

Oil and gas producers are facing an "economic triple whammy" as plummeting oil prices squeeze revenues, forcing through cost cuts, which in turn could lead to industry-wide under-investment.

Oil prices have fallen around 60 per cent since July last year, forcing FTSE-listed companies such BP, BG Group and Tullow Oil to make huge write-offs and scale back exploration in a bid to cut costs.

However, "despite the real and present danger of an economic triple whammy," oil and gas companies will survive in a world where oil prices languish at £50 per barrel if they choose to "transform the way they operate".

"[Oil and gas companies] are at risk of an economic triple whammy: as the falling oil price reduces income, incremental investment may no longer be economic with a risk that field life diminishes and decommission in accelerated," Brian Campbell, oil and gas capital projects director at PwC and co-author of the report, said.

“But it’s not too late to glean some good out of adversity and for businesses to work together to create their own new dawn for the North Sea."

The report said companies should revise their business model, utilise technology, maximise the potential of asset portfolios, spin off non-core parts of the business and make strategic acquisition to secure market position.

But companies must avoid "short term knee jerk reactions" which could damage the industry's long-term future.

"We recognise this may be a much more complex and challenging path. But only by approaching transformation from that vision can we escape short term knee jerk reactions that could wipe out knowledge banks and turn off suppliers for example, actions which could ultimately damage future business growth and the viability of the wider industry."

"Ultimately if we are sensible about the changes needed, businesses, as well as the oil and gas sector, will be much leaner and more efficient …and crucially for our UKCS, fit for the future.”

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