A leading oil and gas expert warned the industry should prepare for a lower oil price over an extended period and that there was more pain to come for the beleaguered UK sector.
Bob Ruddiman, global head of energy at legal firm Pinsent Masons, used an old Scots term to describe the challenges ahead, but insisted there would also be winners as the industry takes on a new shape.
Aberdeen-based Mr Ruddiman said: “If you go back a couple of years, there was period when capital expenditure in the North Sea was around £13 billion a year but few stopped to ask, what do I actually get for my £13 billion these days?
“Things clearly got out of control and I am afraid there is going to be ‘porridge and auld claes’ (old clothes) for a while yet. Lower for longer, is the mantra many people in oil and gas circles are now adopting as we move in to 2016 and beyond.”
Mr Ruddiman said the current downturn was different from previous slumps where significant geopolitical events, such as the sustained unrest and war in the Middle East for example, would have likely created an upswing in the price of crude.
He said that in addition to widespread job losses experienced by many oil related businesses in Scotland and across the UK, there was currently a lot of restructuring activity taking place involving businesses burdened with heavy debt.
He added: “There is more pain to come and I fear that there are still some individuals, and some companies, sitting thinking ‘when things get back to normal I should be ok’. That mind-set will not survive this downturn and we will see more collapses, and unfortunately some of them potentially of quite significant scale.”
But on a positive note, he insisted there is a future for the UK oil and gas industry and the game is far from over.
“I have worked in several industry downturns before, and while each one had its own quirks, I do believe there are parts of the industry that will come through this very strongly, with opportunities for those who have not believed that this was a one-way-bet the whole way.
“Those that are involved in production efficiency and operations, and the ones who can genuinely bring in innovation, face a brighter future because we are going to have to get used to working with a lower cost base.
“Nobody is saying the world is about to stop consuming hydrocarbons any time soon, but we do have to adjust to the new normal of a lower oil price and an industry which demands lower costs, more innovation, much greater collaboration, and an increasing promotion of alternative fuel sources consistent with recent ‘climate change commitments’.”