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Grant Thornton report on prospects

Oil price volatility forcing firms to delay projects or sell assets

North Sea rigThe fall in the global oil price is forcing companies in the sector to delay projects and even consider selling assets, according to a new report.

A survey of senior oil and gas executives has found that 42% have put some plans on hold, while 11% need to raise extra finance or sell existing assets to remain operational.

A further 11% suggest they will need to engage in significant financial restructuring before the end of the year, says the report, produced by Grant Thornton.

Asked for a prediction on oil prices by the end of the year, 63% of early stage respondents expect the price of oil to be between $55 – $65 per barrel, as opposed to 46% of existing producers who saw the price within this range.

Looking to the end of 2016, 85% of early stage company respondents believed the oil price will rebound to between $56 – $100 per barrel, whereas 66% of existing producers thought this.

Linda Beal, global leader for the energy and resources industry at Grant Thornton, said volatility in the oil was clearly impacting on day-to-day planning.

“Despite demand remaining buoyant over the past year, oil prices have been on a rollercoaster of volatility which the industry hasn’t seen for decades,” she said.

“This has forced many oil and gas companies into a new mindset. Particularly at the smaller end of the spectrum, companies have had to redefine the meaning of ‘normal operations’ over the course of the year and that’s leading to some transformative, and often difficult, decisions being made.

“Whilst it’s understandable that nerves have been rattled in the short-term, doing nothing is not an option – nor is that approach sustainable in the long term.”

The report suggests consolidation in the sector will increase over the coming months, particularly amongst suppliers to the industry, with 42% of respondents believing heightened merger and acquisition (M&A) activity along their supply chain is a likely outcome, as margins are cut and operating costs continue to decline.

Ms Beal continued: “With the prospect of contracts not reverting back regardless of a bounce back in oil price and on-going M&A activity in the supply chain, agility is proving the key to success. Executives need to keep all options open with a more flexible workforce that can readily scale up or down and is even more able to move internationally than has been the case until now.”

Kevin Engel, managing partner for Grant Thornton in Scotland, said: “The oil and gas sector plays a significant role in the stability of the Scottish economy and any changes, however long these will endure, will have an impact on Scotland’s continued economic growth.

“Predicting fluctuations in the oil price is difficult but even more so in the current economic climate – we need to remain optimistic that this will rise quickly and work to reduce the negative impact in the meantime.”

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