Paul Zalkin discusses the UK’s struggling oil and gas industry

For some time there have been murmurs of trouble brewing for businesses connected to the UK’s offshore oil and gas industry and there is evidence of a notable uptick in the number of formal insolvencies across the sector. Given their proximity to the North Sea oil and gas fields, cities such as Aberdeen and Norwich rely heavily on the oil and gas industry for employment and inward investment. However, the supply chain extends across the UK so this is not an isolated regional issue. 

In his foreword to Oil & Gas UK’s recently published “Activity Survey 2015”, Malcolm Webb, CEO of the industry body, makes a pertinent point:

“If the challenges facing our industry were significant when oil was at $110 per barrel, the scale of the issue has greatly escalated with the oil price collapse.”

Until the middle of 2014 a barrel of Brent crude had traded at approximately US$110 for a sustained period. However, it is now scraping along at USc.$60  having fallen by up to 40% over the past 8 months. 

This is good news for drivers, who are currently enjoying pump prices not seen since the last decade, and for domestic and commercial utility customers whose providers are coming under pressure to reduce retail prices. In more general terms, distribution and raw material costs are falling and the savings are slowly filtering into the wider economy, especially in sectors like food retail where a price war is being fought in the middle ground.

However, this good news for consumers has to be considered in the context of less favourable consequences the wider economy, such as falling oil and gas related tax receipts, and in the context of the strategic implication arising as a consequence of the UK’s increasing exposure to foreign energy imports and unstable markets.

Part of the argument for protecting our domestic oil and gas industry is about the risk of falling hostage to unpredictable oil producing regimes in the Middle East, Russia and the former Soviet Republics. However, the arguments are also about protecting an industry that provide jobs to c.400,000 people across the UK, creates a valuable export market, pays billions in taxes and invests further billions in research and infrastructure.

In terms of the outlook, the industry faces challenges on every front – economic, regulatory, political and technological - and a coordinated response from government and industry is required to arrest its decline.

If you or your clients are exposed to the issue highlighted in this article, we would be happy to arrange an initial meeting to discuss how Moorfields Corporate Recovery Ltd could help.

Author
Paul Zalkin
Tel: +44 (0) 20 7186 1152
Email: pzalkin@moorfieldscr.com

About Moorfields

Moorfields is one of the UK's leading independent firms of restructuring and insolvency specialists. Our highly skilled teams include restructuring professionals and licensed insolvency practitioners who provide leadership, experience and high quality advice to companies and their stakeholders in financially distressed situations

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