Alan McCrae, a partner at PwC who heads up oil and gas tax, said that unless there was a “dramatic recovery in the oil price,” several fragile areas of the North Sea would struggle to stay in business.
“The worry is that bits of the North Sea were already heading towards the end of their life and therefore they might not be able to ride out the cycle,” McCrae told City A.M.
“There is still estimated to be a lot of potential reserves there, and some of that possibly will not get discovered,” McCrae added.
Figures released by HM Revenue and Customs (HMRC) last week revealed the extent of the decline in the oil industry. In the 2015/16 financial year, the North Sea generated just £35 million in corporate taxes for the exchequer - down from around £11 billion in 2011.
Investment by the industry has also collapsed in the face of the oil price slump. Capital expenditure in the UK oil and gas industry is forecast to fall from £14bn in 2014 to £1bn this year.
McCrae warned that the current downturn could leave problems for the industry further down the road. When costs get squeezed, “recruitment goes to pot”, he said. The “likely scar is going to be skills … some generations [of talented workers] are going to be missed”.
With the oil price seeming to have stabilised at somewhere below $45, McCrae said he believes the bottom could have been reached, and said that operators in the North Sea have been adept at cutting costs during the downturn, something that “ought to help with the future.”