OIL services giant Petrofac has unveiled plans for deep cost-cutting which it is thought could put around 200 North Sea jobs at risk amid turmoil in the market

The company, which helps firms develop and run oil and gas facilities, said it was taking decisive action to cut costs in response to what it described as unprecedented disruption.

The plans will involve staff being laid off or put on furlough and cuts in wages.

The announcement came as firms try to respond to the slump in the crude price triggered by the coronavirus and the start of a price war between Saudi Arabia and Russia.

Warning: North Sea faces 'premature end' as firms slash costs amid mayhem in oil market

The Brent crude price fell around four per cent yesterday as hopes that the two countries would agree a peace deal faded.

Brent traded at $32.82 per barrel yesterday afternoon compared to $52/bbl at the start of March.

Petrofac’s action provides another clear sign that important North Sea players are bracing themselves for a deep downturn.

Even if exporters agree to cut production, demand for crude could remain weak for a long time amid the disruption caused by the coronavirus.

Petrofac announced its cost-cutting plans days after Aberdeen-based Wood unveiled a range of similar measures.

North Sea oil services giant cuts jobs and dividend

Petrofac said it was acting in anticipation of cuts in activity by firms that control fields.

“We are taking swift, decisive action in response to the Covid -19 pandemic and lower oil prices to reduce costs, retain our competitiveness and preserve the strength of our balance sheet,” said chief executive Ayman Asfari.

The company plans to cut cost by at least $100m this year and by up to $200m in 2021.

It said this will involve “reducing personnel by c.20 per cent and furloughing staff in anticipation of a reduction in activity levels”.

Petrofac did not detail how the cuts will impact on operations in different countries. It has operations in countries stretching from the UK to Malaysia. The 20% headcount reduction includes people whose jobs will be made redundant and those who will be put on furlough.

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The company is thought to employ around 900 people in Aberdeen and a further 2,000 working offshore in the North Sea.

Around 600 posts would be affected if 20% of the staff concerned were laid off. The fact the majority of North Sea staff are employed in labour intensive work offshore may mean the toll is not so heavy.

Petrofac will also reduce the salaries of most employees by up to 15 per cent. Members of the board and senior management team will be affected.

The company plans to reduce non-staff overhead costs by up to 25% and to cut spending on new assets by 40% in moves that will impact on the wider supply chain.

To help it retain cash Petrofac said it would scrap $85 million payouts to investors, in respect of the 25.3 cents per share final dividend proposed in February.

“In this period of extreme economic uncertainty, management believe it is prudent to take steps to preserve cash and liquidity,” said Petrofac.

The company said it would review the payment of dividends when the full impact of Covid-19 and low oil prices is known.

Last week Aberdeen-based Wood said it planned to scrap $160 million (£130m) dividend payouts in response to the Covid-19 coronavirus crisis.

The costs of the crude price plunge must be shared fairly

Wood said it had started cutting staff and putting employees on furlough without detailing the impact on its extensive North Sea operations.

Industry body Oil & Gas UK has warned that cuts in spending by companies that control fields could cause pain across the North Sea supply chain.

This was hit hard after firms retrenched in response to the plunge in the oil price from 2014 to early in 2016.

There was a muted pickup in activity in the area in response to the partial recovery in the crude price from late 2016, when the Opec + group of exporters agreed to curb output to support the market.

The agreement fell apart last month after Saudi Arabia and Russia disagreed about how to respond to the impact of the coronavirus on demand.

Both countries are keen to win back market share they have lost to US shale producers in recent years.

The Brent crude price jumped on Thursday after President Trump tweeted that he expected Saudi Arabia and Russia to agree significant production cuts within days.

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