THE North Sea oil and gas industry faces a serious wave of job losses in the next year or so, made worse by the slump in the oil price, Sir Ian Wood, the world-renowned expert, has warned.

 

Just 48 hours after analysis by the industry and the UK Government suggested 35,000 jobs could go over the next five years, Sir Ian joined other experts to suggest that the sharp fall in a barrel of oil - from the summer peak of $115 to below $65 - could accelerate the lay-offs in the short term.

At present, the industry employs around 375,000 people; half in Scotland and half across the rest of the UK.

Sir Ian, who recently headed a Whitehall-commissioned review into the future of the industry, is now calling on the Treasury to ensure the £450m of tax incentives to help companies explore the North Sea be fast-tracked to avert a crisis.

"Even at $100 (a barrel), the industry was facing some pretty serious problems: very low exploration rates; production way down, 1.4m barrels per day way down; costs rising and, frankly, about one third of North Sea assets were estimated to be up for sale. On top of that, we've now got a 35 per cent reduction in price," he explained.

"It moves from being a challenging scenario...to quite a serious scenario and, frankly, is now very dependent on the Government taking appropriate taxation action to prevent what could become quite a serious downturn."

The Aberdeen-based expert suggested the real problem was lasting damage being caused to the industry. He explained: "You simply can't put it together again if you have one and a half or two years of a real slump; you lose people, assets and confidence and it's quite hard to get it back again."

Sir Ian made clear he now expected "quite a serious loss of jobs in the next 12 to 18 months".

"I'm going to guess that 10 per cent of the jobs could go purely through pretty harsh measures to try and cut costs and reduce the cash-flow losses; that's including the supply chain.

"I don't believe there's an operator anywhere in the North Sea right now that's not going through their people numbers and looking at what they can do to cut costs back for next year. Some fields will stop next year; be shut in. Some new projects will go slower and won't be started," he said.

Nick Butler, a former BP executive, and now a Visiting Professor at King's College London, said companies were starting to retrench and shed jobs. He said the North Sea was at a "real point of change".

Prof Butler revealed he had just been asked to do a study on decommissioning in the North Sea "because at $65 a barrel it is not commercial to carry on with some current production and certainly not commercial to go ahead with new production".

Last week, Chancellor George Osborne in his Autumn Statement announced a two per cent cut in the supplementary charge on oil company profits, lowering the rate from 32 per cent to 30; in 2011, he controversially upped the rate by 12 per cent.

Danny Alexander, his Liberal Democrat deputy at the Treasury, made clear more tax cuts would come but only when affordable.

The "real game-changer", argued the Highland MP, was the tax break for investment across the whole of the North Sea, which would enable investors to plan better. But the new Investment Allowance will only be introduced "over time" and after consultation. Other measures on helping exploration are not expected to be introduced until after the 2015 Budget.

But Sir Ian stressed the "key thing" was to get the tax incentives into play soon.

"They have proposed field allowances, higher tax benefits for investment in new fields and in major spend on existing fields, it won't spark a lot of investment but it will help confidence for the future.

"Very importantly, they have got some measures to try and enhance exploration, that's vital, that's the seed corn; these measures need to be in place by the Budget next March," he added.