WITH the outlook for the North Sea getting bleaker by the day BP has made a move that appears unlikely to help the oil and gas industry win the friends it needs.

On Tuesday BP revealed that it had plunged $4.4 billion (£3.5bn) into the red in the first quarter as the disastrous fall in oil prices triggered by the coronavirus took a heavy toll on the firm.

As the oil giant highlighted the degree of uncertainty about when conditions might recover, chief executive Bernard Looney said BP was facing unprecedented challenges.

BP slashes valuation of North Sea portfolio as it plunges into red

The loss was partly the result of the company’s decision to slash the valuation of its North Sea portfolio by around $440 million to reflect the impact of the oil price fall.

With valuations of assets in other countries except the USA apparently unaffected the move underlined how grim the outlook for the UK North Sea is.

Mr Looney said job cuts are in prospect across BP’s global operations later this year. He is reshaping the firm to help meet the target he has set for it to become a net zero business by 2050.

Earlier in April he said no BP employees would be laid off as a result of virus-related cost cutting for the following three months.

On Tuesday BP reiterated that it plans to cut running costs by $2.5b annually and to spend $4bn less on new projects than previously planned.

Against that backdrop BP’s decision to increase its first quarter dividend to 10.5 cents per share from 10.25 cents was bound to attract comment.

The costs of the crude price plunge must be shared fairly

Greenpeace said it sent a clear signal that BP was focused on the interests of shareholders rather than the public good.

“By sticking with a business as usual dividend payout, BP is ignoring the severity of the multiple crises we now face,” declared the campaigning group, adding: “Dividends are not mandatory and can’t take precedence over investment in clean renewable energy crucial to a more resilient climate and economy.”

Mr Looney said BP was trying to play its part in the global response to the coronavirus. He told analysts that recent oil and gas market developments had only reinforced the BP leadership team’s belief in the importance of supporting the energy transition.

All eyes will be on Royal Dutch Shell today when the Anglo-Dutch giant announces its first quarter results.

Like BP, Shell made deep cuts in the North Sea in response to the deep downturn caused by the sharp fall in the oil price from 2014 to early 2016.

Before the market turned down this year both highlighted the potential of their slimmed down UK upstream businesses.

The announcements they make will come under especially close scrutiny following claims by North Sea industry leaders this week that the sector deserves special treatment amid the challenges posed by the coronavirus.

North Sea at 'breaking point' as oil price turns negative in US

The North Sea industry seemed to be enjoying a slow recovery from the last oil price plunge, following a limited improvement in crude prices from late 2016. However, the outlook for the area has been totally transformed for the worse as a result of the recent market turmoil.

After oil prices went negative in the US last week amid concerns about storage facilities being overwhelmed, and Brent crude fell below $20 per barrel, Oil & Gas UK said the North Sea was at breaking point.

On Monday this week it warned that up to 30,000 jobs could be lost in the North Sea supply chain over the next 18 months. That would represent around one in five of the 150,000 workers employed by firms that operate oil and gas fields and companies that provide support services for them.

The prediction was based on a survey which provided a clear indication of the scale of the pain that is likely to be inflicted on firms unless there is an improvement in market conditions on a scale that no one seems to be predicting.

Record production cuts agreed recently by Opec Plus members are due to kick in soon. The fall in the crude price since the curbs were agreed reflects the view among traders that they will not stop supplies running ahead of demand for some time.

Oil & Gas UK found a near unanimous view among respondents that the outlook had worsened since the start of the year.

The findings suggest operators could cut spending on new assets by around £2 billion this year. It is now expected to fall to a 20-year low of £3.5 to £4bn. In March investment of £4bn to £4.5bn was forecast. Firms invested £5.5bn in 2019.

Spending on running costs this year is expected to be up to 20% lower than had been expected, at around £6bn to £7bn.

The cuts will cause pain across the supply chain. Firms that rely on exploration and appraisal activity for work have already started laying off staff.

Oil & Gas UK has warned many firms could go out of business. Lots are grappling with the legacy of the last downturn.

Crane hire firm goes into administration amid oil and gas market challenges

The chief executive of the organisation Deirdre Michie noted on Monday that many industries have been profoundly impacted by the coronavirus.

But she said the outlook was especially bleak for the industry she represents, and which Oil & Gas UK reckons should get a tailor-made support package from Government.

The industry has been hit harder than some others because it has had to deal with the logistical challenges posed by the coronavirus as well as steep falls in the prices of the commodities it produces.

The government must recognise that it will take the industry longer to recover than other parts of the economy said Oil & Gas UK.

It also argued that the industry must be supported through the current downturn because the UK will rely on it to ensure the security of its energy and to support the effort to tackle climate change in future. The country can’t afford to lose the capabilities and skills concerned.

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

The organisation wants government and regulators to offer a three-stage support programme. This will involve providing aid to keep companies going and to safeguard jobs in the short term, helping firms to capitalise on the recovery when it comes and agreeing a sector deal to support the industry’s long term involvement in the energy transition.

The wish list is notable for the fact tax cuts are not on it. The Government provided generous breaks in response to the last downturn. There would be little point cutting the tax rates levied on profits if losses are the order of the day.

Some suggestions appear uncontroversial. These include a call for the Government to accelerate net zero incubator projects in areas such as floating windfarms at pace and to tweak the scheme under which larger firms can access credit.

But others may cause raised eyebrows.

Oil & Gas UK wants the Government to extend the scheme under which it helps cover the wages of people put on furlough to at least the end of 2020 (from June currently) because of the uncertainty about when demand for oil and gas will recover.

As other industries face similar uncertainties any such extension of the furlough scheme should surely apply across the board.

Oil & Gas UK also wants the Government to provide guarantees to firms that invest in major supply chain companies. This could amount to the taxpayer effectively providing bail outs for the firms concerned.

It must be remembered that some firms are still making lots of money in the North Sea. Some have expanded in recent years after winning backing from deep-pocketed private equity firms that make a virtue of being able to invest through the cycle.

Support must go to the firms that need it most and could make a big contribution to the UK industry’s long-term development. That will mean focusing on the small and medium sized enterprises that do not have the reserves of bigger fish but provide many jobs and power innovation in the sector.