Despite George Osborne’s budget measure to cut around £1bn of supplementary taxes on North Sea oil companies, investment in future production continues to fall.
Until now, most of the losses resulting from low oil prices have been felt by the small oil companies. However, global players like Shell and ConocoPhillips are now looking to sell or close their interests in the North Sea.
The ConocoPhillips decision to shut down the Lincolnshire Offshore Gas Gathering System will ring alarm bells in the corridors of the Department for Energy and Climate Change, where civil servants are already running out of ways of keeping the lights on. If the closure goes ahead, Britain will lose ten percent of its gas capacity, together with several otherwise active gas fields.
None of the North Sea operations are profitable with oil prices below $50 per barrel. But few analysts believe oil prices will rise that high until the current over-supply of oil has been consumed. With Iran, Iraq and Libya pledged to increase production, and with Saudi Arabia determined to hang on to market share, we may not see sustained price increases this side of Christmas… by which time, the North Sea may have been decimated.