Ewan Mitchell, head of analytics at Company Watch, said: “Many of the smaller
quoted oil and gas companies were set up specifically to take advantage of
historically high and rising commodity prices. The recent large falls in the
price of oil and gas could leave the weaker companies in difficulties,
especially the ones that need to raise funds to keep exploring.”
Losses are expected to much deeper among privately-owned oil and gas
explorers, which traditionally have more debt. Company Watch has warned that
almost 90pc in the UK are loss making with accounts that show a £12bn
accumulated black hole in their finances.
Mr Mitchell said: “Investors in this sector need to focus primarily on the
strength and structure of the balance sheet. A critical question is whether
the balance sheet is sufficiently robust to keep the company in business
until revenues are expected to flow and, crucially are they likely to be
able to rely on existing funding lines while they wait?
“Our fear is sustained low oil and gas prices will put an intolerable
financial burden on the weaker companies, jeopardising many livelihoods.”
The findings of the Company Watch research are the latest downbeat analysis to
hit the industry, which is preparing itself for oil prices to fall below
current levels of $60 per barrel. Sir Ian Wood, founder of the oil and gas
services giant Wood Group, warned earlier this month that the North
Sea oil industry could lose 15,000 jobs in Scotland alone and that
production could fall by 10pc as drillers cutback.
According to energy consultancy firm Wood Mackenzie, around £55bn of oil and
gas projects in the North Sea and Europe could be shelved should prices fall
below their current levels.
Ratings agency Standard
Poor’s recently flagged its concern of some of Europe’s
biggest oil and gas groups such as Royal Dutch Shell, BP and BG Group. Its
primary worry is debt levels which it says have jumped from a combined
$162.9bn (£105bn) for the five largest European companies in the sector at
the end of 2008 to an estimated $240bn in 2014.