This just in from the Torygrafffff, not the stuff us geezers wott earn a living in the place wanted to hear…yet.
The North Sea oil industry faces a drastic squeeze as the world’s crude glut worsens, BP has warned.
“We’re going to see massive restructuring,” Bob Dudley, chief executive, said. “The North Sea is a very high cost basin and it is going to be a painful adjustment.”
Mr Dudley told the IHS CERAweek forum in Houston, Texas, that the latest tax cuts in the Budget will help margins but do not go far enough to avert a bloodbath for smaller drillers and exploration companies.
The warning follows a study by the International Monetary Fund showing that the UK’s oil and gas industry has the highest cost structure of any major region in the world – if taxes are included – and is the most vulnerable to a prolonged downturn.
Mr Dudley said there is little chance of a revival in crude prices for a long time given the “remarkable resilience” of US shale producers, who have defied predictions of collapse and continue to drill record volumes.
The US rig count has plummeted from more than 1,600 in November to 734 this week, yet this has not led a cut in output due to rising efficiency and a shift in drilling tactics.
“It’ll level off, but for now we’ve quite a bit of surplus oil. There could be unintended consequences for the world in terms of stress,” Mr Dudley said, alluding to a possible wave of bankruptcies.
BP chief executive Bob Dudley
He added that a nuclear deal with Iran and the lifting of sanctions on the country could lead to a fresh surge of supply, perhaps more quickly than expected. “It will not take too long to have another 500,000 [barrels a day], and I don’t see Russian production coming off,” he said.
He compared the current dynamics in the global oil market to the glut in 1986, which took several years to clear. While big projects in the North Sea are still viable at today’s prices near $60, the area risks relentless decline.
Meanwhile, Mr Dudley also revealed that the Deepwater Horizon spill in the Gulf of Mexico five years ago had cost BP a total of $44bn (£29.5bn) so far in clean-up costs, legal settlements and provisions. “I don’t think any company has done more, so quickly, after an industrial accident,” he said.
Rivals are eyeing BP as a potential takeover target, calculating that the company may be too weak to defend itself as the energy sector faces a wave of mergers. But Mr Dudley said the group bolstered its defences before the oil price plummeted.
“We have been able to divest $40bn of assets. This has reduced risk and left us in a better position to weather the storm facing our industry. We are making some very tough decisions,” he said.
The company is seeking buyers for $2bn of US pipelines and storage terminals, according to Bloomberg.