NORTH Sea oil and gas firms must avoid making knee jerk decisions following the slump in the crude price or risk undermining the future of the industry, PwC has claimed.

 

However, experts at the accountancy giant said the UK industry must cut costs by 30 per cent following the price fall since June. They expect this to put huge pressure on the North Sea.

The firm warned companies will decide a growing number of fields are uneconomic and close them down. It expects a wave of strugglers to get picked off by stronger fish.

PwC reckons the government needs to offer more generous tax reforms to help the industry tackle the challenges it is facing.

But the company warned oil and gas firms could make their problems much worse in the long term by taking an over hasty approach to tackling them.

Noting the deep staff cuts oil and gas firms made amid the downturn in 2000 sowed the seeds of future skills shortages, experts at PwC warned against repeating the errors of the past.

Kevin Reynard, office senior partner at PwC in Aberdeen, raised the prospect firms could wipe out vital banks of knowledge and alienate suppliers whose expertise is vital.

He said such actions could damage the businesses concerned and the viability of the wider industry.

A series of oil and gas companies have announced deep cuts in staffing following the near 60 per cent fall in the crude price since June.

BP and Talisman Sinopec each announced plans to axe 300 jobs in Aberdeen last month.

PwC put the onus on firms to try to find opportunities in the adversity the industry faces in an age in which $50 per barrel oil may become the norm.

Brian Campbell, oil and gas capital projects director at PwC, said: "It's not too late to glean some good out of adversity and for businesses to work together to create their own new dawn for the North Sea."

PwC said firms should adapt their strategies to think how they can capitalise on the changes in the North Sea.

This should include considering mergers and acquisitions and selling non core assets.

The firm predicted there would be more distressed sales and opportunistic bids for companies with good underlying assets but the wrong financing structure. The action may include the first major hostile oil and gas takeover in a long time.

PwC thinks cash-rich buyers from outside the North Sea will scour the area for bargains.

It also recommends firms make greater use of new technology and collaboration with suppliers.

However, a report on the North Sea by PwC underlines the challenges the industry will face in coming years.

The firm said with economists predicting low oil prices throughout 2015, UK firms may face an economic triple-whammy. As companies find income falling they may decide it no longer make sense to invest in keeping some fields in production. This could mean fields are shut down and decommissioning is accelerated.

The firm said the UK industry must make cost reductions of 30 per cent. This is a big ask.

Mr Campbell said: "We've been talking about cost reduction and restructuring within the industry for several years now and the harsh truth is that if many larger exploration and production and oil field services firms had implemented programmes before the oil price crisis hit, then the industry would be in a much better place to weather the storm."

Meanwhile Canada's Talisman Energy said it had slashed the value of its North Sea portfolio by US $287m (£190m). The company operates in the North Sea in a venture with China's Sinopec.

Last week BP cut around $5bn off the value of its North Sea estate.