British oil and gas sector planner Ian Wood said low crude oil prices will endure through at least 2018. File photo by A.J. Sisco/UPI | License Photo
LONDON, Sept. 28 (UPI) -- The British oil and gas sector is in a short-term decline with no chance of recovery for at least two years, an industry planner told the Financial Times.
Low crude oil prices, down about 50 percent from last year, has forced energy companies to cut spending on exploration and enact layoffs in an effort to reserve capital. Ian Wood, a retired businessman who last year charted a North Sea recovery, told the Financial Times crude oil prices would likely stay low for at least two more years.
"Oil at $35 to $55 [per barrel] is the likely scenario into 2017, and I think the best guess right now for a recovery in the North Sea is 2017-18," he said.
Operating expenses in the North Sea are up 8 percent while revenues for oil companies working in the region are at their lowest levels since 1998. Combined, those elements translate to a negative cash flow for North Sea operators.
A budget plan outlined in March by the government was designed to boost exploration for new oil and gas reserves in British territorial waters. Tax incentives in the new package should help stimulate investor confidence in a North Sea oil and gas industry coping with the decline of older fields, officials said.
Nevertheless, Oil & Gas U.K., the industry's lobbying group, said in its annual report new spending in exploration and production is expected to fall by up to $6 billion per year over the next three years for its lowest levels since the 1970s.
Wood cautioned the sector should expect a deep contraction.
"The industry will lose jobs, whole teams, plants and equipment," he said. "But we must be really careful we don't lose infrastructure, as the damage will then be permanent."
Separate analysis from energy consultant group Wood Mackenzie finds around 140 oil and gas fields operating in British waters will cease operations even if oil prices recover 70 percent of their value within the next five years.