Oil exploration in the North Sea is set to be hit hard this year as companies mothball as many as half of the exploration drilling rigs in operation, resulting in thousands of job losses.
Big oil companies, such as Total, are suspending drilling after crude prices more than halved in six months.
The price of Brent, the benchmark, fell yesterday to $48.90 a barrel, its lowest since April 2009, as there was no sign of the global glut in crude supplies easing as demand weakens.
The French oil company ordered its contractor, the Aberdeen-based KCA Deutag, to halt drilling at its Alwyn North platform to the east of the Shetland Islands.
A spokesman said: “Total has decided to pause exploration drilling . . . This decision comes at a time when the whole UK offshore industry is looking to become more efficient.”
KCA Deutag is understood to be suspending platform drilling elsewhere after other companies ceased activity.
On Thursday the contractor warned staff there could be job losses as a result of the cutbacks if drilling crews, typically 30-strong, cannot be redeployed.
Jake Molloy, of the RMT union, said that between ten and twenty drilling rigs, out of about forty, would be mothballed in the next three or four months. Each rig has a crew of about 200, which means that the industry faces job losses of up to 4,000 from cuts in the use of such drilling rigs alone.
The rigs will be towed to Norway if alternative work can be found there. If not, they will be anchored in the sheltered waters of the Moray Firth near Inverness.
Mr Molloy warned that the oil industry faced the same fate as mining unless the government did more to support it.
“It’s going to be a slow death by a thousand cuts. It’s going to mirror the mining industry. Once it starts, it sweeps across the board. Westminster needs to be doing more,” he said.
Talisman Sinopec Energy, a Canadian-Chinese joint venture, terminated a two-year contract this week to hire a North Sea drilling rig from Archer Drilling, a Houston-based contractor, with effect from January 29.
A spokesman for Archer admitted that it had held discussions about the impact on staffing levels.
Oil companies are slashing costs and shelving projects in an attempt to survive the downturn. Exploration is the first activity to be cut as it does not generate revenue, unlike production.
Companies that supply drilling rigs are also feeling the pain. Sodexo, the French food services company which provides meals to North Sea rigs, is cutting shifts because of the slump in activity. A spokeswoman said: “Sodexo does not set the rotas, our clients do.”
Mr Molloy also claimed that companies such as ConocoPhillips were bringing forward the decommissioning of old oil and gas platforms, which are expensive to maintain.
A spokesman for the US group refused to comment on whether it had accelerated the timetable for the shutdown of its gas production platforms in the southern North Sea or the MacCulloch oilfield, 250km (155 miles) northeast of Aberdeen.
ConocoPhillips, which is the North Sea’s biggest producer, has announced plans to cut 230 of its 1,650 jobs in the UK.
The bill to decommission the 300 old North Sea oil and gas rigs is about £40 billion, with the taxpayer liable to pay between half and three quarters after operators were awarded tax relief.
Shutting down old platforms early would bring forward the decommissioning bill for taxpayers. Last month, Sir Ian Wood, the founder of Wood Group, the FTSE 100 oil services company, warned that operators were preparing to cut 37,500 jobs, 10 per cent of the North Sea workforce.
Last month, the chancellor cut North Sea taxes by 2 per cent and promised to announce new tax breaks for exploration and field development in the budget in March.
Mr Molloy called for larger tax breaks, adding: “What George Osborne announced does not even scratch the surface.
“Taxes have gone up while the going has been good, but we seem unwilling to be flexible when times are bad.”
The Sunday Times
