THE agreement reached by the Opec Plus group of oil exporters at the weekend may have seemed momentous but will probably do little to lighten the gloom in major basins such as the North Sea.

Experts warn oil price plunge will mean end for range of North Sea fields

The scale of the production cuts that Saudi Arabia and Russia persuaded weaker players to sign up to was historic at 9.7 million barrels daily, or 10 per cent of total global supply.

The fact a deal was agreed was a cause for much relief following the precipitous fall in the crude price to an 18-year-low of less than $25 per barrel last month. This followed a spat between Russia and Saudi Arabia about how to respond to the disastrous impact of the coronavirus on demand.

Experts had said there was a real prospect that the crude price could fall into the teens if the Saudis and Russians continued flooding the market with crude.

President Trump was happy to claim credit for applying the pressure required to get the countries to the table. He tweeted the deal would save hundreds of thousands of US energy jobs.

Debt-laden US shale players could not cope with a long period of crude trading at less than $30/bbl.

But movements in the crude price since the deal was agreed have sent a clear signal that traders do not think it went far enough.

Brent crude rose to $35/bbl last week after Mr Trump fuelled hopes that Saudi Arabia and Russia would agree to make massive cuts in production at his prompting.

By yesterday morning the black stuff was selling for less than $30/bbl again.

Traders are concerned that the cuts agreed by Opec Plus are not on a big enough scale to prevent global crude inventories swelling hugely following the huge drop in demand resulting from the imposition of coronavirus lockdowns around the world.

The cuts will only take effect in May.

Crude prices are expected to remain under pressure in the first half of the year.

The costs of the crude price plunge must be shared fairly

A modest recovery may be on the cards in the second half assuming demand picks up when lockdowns are eased, but that’s a big if. Opec Plus members could always fall out again.

Industry champions in the North Sea have expressed hope that changes made in the area in response to the challenges posed by the last crude price plunge will help firms cope with another downturn.

However, the signs are that the return of tough market conditions will take a heavy toll on the area, with alarming implications for the jobs of thousands of people.

Some firms will be able to make good profits on production from North Sea oil fields even at low oil prices.

Cost cutting moves made amid the last downturn have helped increase efficiency in what has long been seen as a relatively high cost area.

Scale economies allow firms that operate big new fields in areas such as West of Shetland to produce oil very cheaply using modern technology.

Majors including Shell and BP, and prominent independents such as Cairn Energy will probably be glad that they invested heavily in the Shetland area in recent years.

Israeli-owned Ithaca Energy said last week that it expected to be able to generate $450 million cash profits this year even in the Brent price fell to $1/bbl.

Israeli oil firm set to make massive profits in North Sea despite crude price plunge

But the company is reaping the rewards for an effective hedging policy under which it sold oil in futures markets at $62/bbl plus .

The North Sea contains lots of fields that are relatively small and are mature, which could soon become unprofitable.

Those that are operated by companies that are servicing debts accumulated in happier times could be candidates for early retirement.

EnQuest, which has expanded through acquisitions in the North Sea under Amjad Bseisu, recently decided it no longer made sense to restart production from two fields that it shut in last year for remedial work. The Thistle and Heather fields are set to be decommissioned much sooner than some might have hoped.

Prominent oil and gas consultancy Wood Mackenzie recently sounded the alarm about the potential impact of retrenchment in the North Sea when it warned that cost cutting moves could result in its “premature end”.

Wood Mackenzie also noted that spending on new North Sea developments is likely to be slashed.

A range of North Sea developments had been thought to be in the running to win Final Investment Decision approvals this year but Wood Mackenzie said the area faced “mass project deferrals”.

Plans for huge Shetland oil field in question as oil price plummets to 18-year low

After the regulator created in response to the last oil price plunge launched a drive to maximise the recovery of the North Sea’s reserves, the fear is that billions of barrels could be left undeveloped.

The Rystad Energy consultancy has warned that the exploration licensing rounds that were due to be held in a range of countries including the UK this year are unlikely to go ahead, citing cuts in investment and a lack of interest among potential participating companies.

With firms that operate fields set to cut spending in all areas other than essential maintenance the implications for the North Sea supply chain are grim.

The fallout will impact directly on firms that provide support services offshore and ripple through industries ranging from engineering to the hotel trade.

Oil services giants Wood and Petrofac have already announced plans to cut jobs. Both have big North Sea businesses.

200 North Sea jobs at risk as oil services giant plans deep cost cuts

Some companies have reduced the numbers of staff working offshore to help them maintain social distancing in response to the coronavirus threat.

It has to be hoped that the support the Government is providing towards the cost of putting staff on furlough will help minimize the permanent impact on jobs.

Access to low-cost credit may help some firms keep going long enough for conditions to recover.

But that may not be for a year or more.

“For those who endure this downturn, 2022 looks increasingly bullish for the oil price in our view,” said Rystad.

It noted the Opec Plus curbs are set to exend into that year.

Investors who have deep pockets and are ready to take the long view may decide it makes sense to buy North Sea assts in coming months. However, some big portfolios have been on the market for some time.

Against that backdrop the impact of the oil price fall could weigh on the public finances for years.

The North Sea had just started generating revenues for the Treasury again after firms were granted generous tax breaks in response to the last downturn.

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