Oil downturn to wipe out over a quarter of North Sea jobs

Official figures from trade group Oil and Gas UK have laid bare the full impact of the historic decline in oil market prices. The global price crash has taken a particularly worrying toll on the ‘supermature’ North Sea basin which is saddled with some of the highest costs and lowest production levels in the world, reports The Telegraph.

Oil prices have recovered by 80pc since hitting twelve year lows of $28 a barrel in January but even at a prevailing price of around $50 a barrel oil is worth less than half than what it did 2014 when North Sea jobs stood 450,000.

Last year the number of jobs supported by the UK’s oil and gas industry fell by an estimated 84,000 to around 370,000, and are forecast to fall a further 40,000 by the end of this year.

Companies across the breadth of the industry have been forced to make deep cuts to their job numbers in order to shore-up market-weakened balance sheets.

The UK’s largest oil companies, including Shell and BP, have posted record losses in the last year while smaller explorers wrestle with debilitating debt and the looming threat of insolvency.  The risks facing oilfield service companies are particularly large because they rely on contracts with the cash-strapped producers for their own income.

Advisory firm EY warned that a third of oilfield service firms could be wiped out from the sector by the end of the year as oil producers pull back from uneconomic ventures.

Investment is expected to fall by almost 90pc this year as companies continue to slash spending and profitability has plunged to lows not seen since 1997.

The Office for National Statistics shows that explorers active in the UK Continental Shelf (UKCS) have seen the rate of return on their investments fall from just 2pc in the third quarter of last year to 0.6pc in the last quarter of 2015.

“We cannot underestimate the impact the global downturn in the industry is having on the UK economy, nor the personal toll for those who have lost their jobs, and the effect on their families and colleagues,” said OGUK boss Deirdre Michie.

Ms Michie warned that the industry has been “spending more than it is earning” since oil market prices first began to decline due to a growing glut of global oil stocks, and that this has forced “some very difficult decisions”.

Further efficiencies will be needed to create a sustainable industry, she added.

“[The industry] is looking to find efficiencies to restore competitiveness, to attract investment and stimulate activity in the North Sea. With up to 20 billion barrels of oil and gas still to recover, this region is still very much open for business,” she said.

Many North Sea contract workers who have managed to hold onto their jobs over the downturn now face longer hours and lower pay, inflaming tensions between trade unions and employers as safety standards emerge as a key concern of the sector’s aggressive cost cutting.

Last month Shell said it will axe almost twice as many jobs as planned following its mega-merger with gas giant BG Group, with a further 2,200 to be axed from its global workforce including 475 jobs from the company’s UK and Ireland upstream business. Shell has already axed 750 jobs from its North Sea business, of which two thirds were UK jobs.

It has also called for voluntary redundancies from the former BG Group head office at Thames Valley Park in Reading.