2016 had been a difficult year for oil and gas companies, and a new study by accountancy firm Moore Stephens reveals that 16 firms in the sector became insolvent last year, compared to none at all in 2012.
The pace of these insolvencies is really alarming and there is likelihood that many more firms may be teetering on the brink.
In the past one year, oil prices have remained under $50, leading to small firms in the sector winding up their businesses.
Jeremy Willmont, who carried out the research, said: “The collapse of the price of oil has stretched many UK independents to breaking point.”
In the past two years, smaller companies have cut their cost base aggressively, and slashed investment, leading to loss of thousands of jobs. This has not only impacted the industry severely, but will also impact tens of thousands of jobs in secondary industries working on and offshore.
A 25 per cent increase in oil prices in the last quarter of 2016 may herald better times ahead, but there will not be a rush to develop new drilling.
Jeremy Willmont, said in the last 15 years, there has been a steady rise in UK oil and gas independents exploring and producing everywhere from Iraq to the Falkland Islands, but unless there is consistent upward trend in the oil price, conditions will remain tough for many of those and insolvencies may continue.
2017 will remain a key year for a large number of companies as they struggle to survive. In particular companies involved in sub-sea extraction may need to be willing to diversify – whether geographically to other regions of the world, into renewables such as offshore wind farms.
Experts say there will be structural growth in wind and solar power as they continue to displace conventional installed thermal capacity (fossil fuels) over the next decade and beyond.