WE already knew 2016 had been a difficult year for North Sea oil, and the revelation that 16 firms in the sector became insolvent last year only confirms it.
What is alarming is the pace of these insolvencies – there were just two the year before – and the likelihood that many more firms may be teetering on the brink.
A 25 per cent increase in oil prices in the last quarter of 2016 may herald better times ahead, and if the price stabilises at above US$50 a barrel, that would be a significant improvement since world oil prices collapsed dramatically in 2014. But the question will be how well placed companies are to respond.
With two painful years of hanging on, while cutting their cost base aggressively, and slashing investment, thousands more job losses as well as more insolvencies are likely despite the better prices.
This has implications not just for the industry itself, but for the tens of thousands of jobs in secondary industries working on and offshore.
Despite the price rise, there will not be a rush to develop new drilling. Although industry body Oil and Gas UK says there are up to 20 billion barrels of crude oil still available to be extracted from the North Sea, the viability of such extraction will depend hugely on the price such oil will fetch.
Survival will remain the name of the game in 2017 and in particular companies involved in sub-sea extraction may need to be willing to diversify – whether geographically to other regions of the world, into renewables such as offshore wind farms, or into the decommissioning of existing rigs.
The oil and gas sector could also embrace some of the efficiencies already enforced upon other industries, in particular using greater collaboration to cut costs.
It is to be hoped an improved price per barrel may help nurture recovery but companies in the sector and those depending on it need to brace themselves for further challenges in the year ahead.
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