Oil companies in Norfolk and UK warned of an economic “triple whammy”
- Credit: PA
Energy companies in the North Sea are facing a potential economic 'triple whammy' that could lead to cancelled future projects, reduced investment and axing of staff, according to a new report.
But the blow dealt to businesses by the plummeting oil price could have been softened if larger energy firms had rolled out cost-cutting programmes before the crisis hit, research by PwC has found.
The research has sparked a mixed response from companies in East Anglia, with some questioning whether the oil price could go even lower in the short term.
As a buffer to uncertainty, PwC has advised oil firms to develop a revised business model with a view to the long-term rather than making knee-jerk decisions.
Craig Douglas, head of assurance at PwC Norwich, said: 'It wasn't that long ago that we were talking about a relatively high and stable oil price, around the time of the Scottish Referendum. We are not as low in real terms as we were in the mid 80s to late 90s, so oil prices could go lower in the short term.'
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Many projects sanctioned for development in the future will have been based on higher oil prices, he continued, making the key question 'how low for how long?' with prices.
Simon Gray, chief executive of the East of England Energy Group (EEEGR), said the region was in a better position than elsewhere to weather the storm and that projects should not be shelved prematurely.
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'There has always been a very high cost level in Aberdeen,' he said. 'The east of England has always had a lower cost model and we are also more gas based, which is doing better right now. But I think you'll see a lot of projects being shelved. The real danger here is decommissioning prematurely, because if we take away the structure and then find gas and oil, we have nothing in place.'
The PwC report stressed oil needed to average at $50 per barrel for firms to survive, and that UK oil and gas firms should heed economists' predictions for low oil prices throughout 2015.
However Kevin Reynard, office senior partner at PwC in Aberdeen, said viewing lower oil prices as a catalyst for driving change within the sector was not a bad starting point.
Do you think the oil and gas industry needs reforming? Contact Jess Staufenberg on 01603 772531, email firstname.lastname@example.org or tweet @StaufenbergJ.