North Sea oil firms are operating on the brink of collapse, with nearly half of all oil fields on the continental shelf likely to operate at a loss this year, a new report has warned.
Oil & Gas UK's annual survey of the sector found that while operating costs have been driven down, it is not enough to offset the decline of the price of oil, prompting it to raise the alarm if it stays at or around $30 a barrel for the rest of the year.
Their “interconnectivity” with other fields would mean many more would fall into the red thanks to a “domino effect", the report also warned.
This would deter groups from "further exploration and capital investment, and making additional cost improvement imperative". This year the upstream industry is expected to approve just £1bn spend on new projects, compared with £8bn in a normal year, sparking fears for the long term future of the industry.
Oil prices have fallen 70 per cent since the summer 2014, and despite a rise in production North Sea oil revenues have fallen 30 per cent to £18.1bn, the report said.
The trade body is calling on the government to make "urgent reforms" to the special taxes paid by the industry to attract investment back into the basin and minimise loss of capacity during the downturn.
Oil & Gas UK’s chief executive, Deirdre Michie, said: "We are an industry at the edge of a chasm. This report can provide the insights to help bridge to an enduring future.
“The basin has to compete fiercely in the global market to attract price-constrained capital to the UK. A coherent approach by the industry, regulator and government will be critical to boost the industry’s competitiveness and its investors’ confidence.
“Together we need to transform the basin into a highly competitive, low tax, high activity province, which is attractive to a variety of operators and sustains and supports the important supply chain based here. It is absolutely crucial that the recently announced Aberdeen City Region Deal and funding for the Oil and Gas Technology Centre, which will help support the industry in the longer term, is accompanied by the right signals in relation to the tax regime.
Michie added: “We have a huge task ahead but the prize is worth fighting for. The UKCS still holds up to 20 billion boe which can continue to provide a secure supply of energy for the country, support hundreds of thousands of jobs, generate several billion pounds in corporate and payroll taxes from the supply chain and stimulate countless technological innovations.”