Experts: UK oil industry is close to collapse

But accountants PricewaterhouseCoopers (PwC) said the falling oil price "should be a net benefit to our economy as a whole, even if there is some losers in the UK oil and gas sector and in particular places like Aberdeen".

While the oil price has plummeted, gas prices remain "relatively favourable" and provide "great opportunities" for investment, North Sea-focused company Independent Oil and Gas Plc said as it announced it is increasing its gas resources off the east coast of England.

Mr Allan, who is also a director at Premier Oil, said: "It's almost impossible to make money at these oil prices.

"It's a huge crisis. This has happened before, and the industry adapts, but the adaptation is one of slashing people, slashing projects and reducing costs wherever possible, and that's painful for our staff, painful for companies and painful for the country.

"It's close to collapse. In terms of new investments - there will be none, everyone is retreating, people are being laid off at most companies this week and in the coming weeks.

"Budgets for 2015 are being cut by everyone."

PwC chief economist John Hawksworth said: "In essence, an oil price fall acts like a tax cut for the economy, but a particularly favourable one in the sense that the burden of lost revenue is primarily borne by the major oil producers such as the Opec member countries and Russia.

"Of course, the UK is still a significant oil producer, but we are now a net oil importer, so there should be a net benefit to our economy as a whole, even if there as some losers in the UK oil and gas sector (and in particular places like Aberdeen).

"As an illustration, in our shale oil report from February 2013, we estimated that a 50 US dollars (£32) fall in the oil price, if sustained, could lead to the level of UK GDP being around 3% higher in the long run."

UK consumers are already reaping the benefits with falling inflation pushing up spending power, providing a knock-on effect for suppliers of consumer goods, he said.

Meanwhile, the Department of Energy and Climate Change (DECC) has extended a licence in the southern North Sea by 12 months to allow Independent Oil and Gas Plc (IOG) to complete the acquisition of the Cronx gas well and begin drilling as soon as possible.

Mark Routh, chief executive and interim executive chairman of IOG, said: "The current environment provides great opportunities for IOG.

"This is the right time to increase the size of the commercial resources in our Southern North Sea Hub centred on the Blythe discovery and take advantage of the relatively favourable gas price environment and the falling rig rates, reducing development costs.

"We continue to pursue opportunities to acquire producing assets and to grow the portfolio by merger and acquisition activities."

Oil veteran Sir Ian Wood last week predicted job losses in the North Sea over the next 18 months as the company he founded, the Wood Group, announced a pay freeze and a cut in contractor rates.

ConocoPhillips is cutting 230 out of 1,650 jobs in the UK, Goldman Sachs predicted big oil firms would have to cut capital expenditure by 30% to restore their profitability and Schlumberger cut back its UK-based fleet of geological survey ships.

The British Airline Pilots Association (BALPA), which represents offshore helicopter pilots, expressed concern that tumbling oil prices are putting pressure on companies to cut costs in search of profits.

General secretary Jim McAuslan said: "We remain deeply concerned that safety will suffer when contract prices are squeezed.

"A recent report by PricewaterhouseCoopers suggested oil and gas companies should consider slashing costs by 40% in the next five years.

"We are concerned that this will drive unsafe practices in pursuit of the bottom line and we again ask for a full public inquiry on how commercial considerations affect the safety culture in this industry."

Union leaders have raised fears that the plug could be pulled on North Sea oil production as companies make "slash and burn" cuts to the industry.

The concern has been raised with Energy Secretary Fergus Ewing as more than 1300 North Sea contractors were told by energy services firm Wood Group PSN that they face a further cut in pay amid a plunge in the world oil price.

The Aberdeen-based company announced that rates paid to UK offshore and onshore contract staff will be reduced by up to ten percent from the end of January. Salaries will also be frozen for the majority of Wood Group onshore employees.

It follows an earlier ten percent reduction for onshore contract workers on June 1.

Wood Group, which employs 12,000 people in the UK, recently secured a £477m contract from BP. It plans to create 150 new jobs as a result of the deal.

But unions believe this is just the tip of the iceberg, having already dealt with a host of pay cuts in the past year.

Jake Molloy, regional organiser of the RMT union's offshore energy branch, believes oil firms need better incentives like tax cuts to prevent the "curtain falling" on oil production.

"If you have an oil price which is below $50 a barrel with the level of taxation we have got then it is just not economic anymore. We need government intervention," he said.

The latest cut comes after energy giant BP announced plans to cut contractor pay following a similar move by Shell which cut rates by 15per cent on November 1.

BP also warned of job losses as it announced £638m plans to streamline its business. BP employs around 15,000 people in the UK out of 84,000 staff worldwide.

In June, Petrofac cut it's rates to contractors by ten percent just over a week after Amec said it would do the same following growing concern over escalating costs.

The crisis comes amidst what some union leaders described as a "perfect storm" of issues that are hitting oil production and helped push the world oil price down.

The US shale revolution has created major competition and has resulted in a boom in oil production over the past five years, growing from 5.4 million barrels of oil per day in 2009 to 8.6 now. Shale gas production has also soared from 59.3 billion cubic feet per day in 2009 to more than 75 Bcf/d now.

Saudi Arabia, the world's largest oil exporter and Opec's most influential member, could support global oil prices by cutting back its own production, but there is little sign of that happening.

Russia too which loses $2 billion for every dollar fall in the oil price has confirmed it will not cut production. One of the world's largest oil producers, its dramatic interest rate hike to 17 per cent in support of its troubled rouble underlines how heavily its economy depends on energy revenues, with oil and gas accounting for 70per cent of export income.

Mr Molloy said the industry was going through the most difficult period since the 1986 slump in oil prices led to decline in production levels, and cuts in the number of offshore workers from 30,000 to around 19,000 in the space of eight or nine months.

"We are looking at a downturn comparable only to 1986, and that was a disaster," he said.

"It's slash and burn on a scale we haven't seen since then. Everything is up for review, from rotas to pay to contracts between companies, the whole lot.

"We have seen the energy minister about the need to manage this because this slash and burn is damaging not just to the workers involved, but to the industry, damaging and risky to the whole concept of sustainability.

"Because if you don't maintain these ageing installations and the infrastructure isn't there to exploit what is left, then the curtain falls.

"If you have an oil price which is below $50 a barrel with the level of taxation we have got then it is just not economic anymore. We need government intervention. We need better incentives to keep them going, like tax cuts."

A UK Government spokesman said: "The recent sharp reductions in oil prices are very challenging for companies active in the North Sea.

"We have seen very little evidence of new projects being cancelled or deferred in reaction to lower oil prices.

"Meanwhile, Government continues to work hard with industry leaders to address the challenges the industry faces and to maintain Britain's energy security by maximising the economic recovery of our domestic oil and gas resources, offshore and onshore."