Oil and gas insolvencies hit record high
The recent slump in oil prices has caused a rise in the number of UK oil and gas sector insolvencies with 16 companies becoming insolvent in 2016, up from only two the previous year, according to research from Moore Stephens
3 Jan 2017
From 2012 to 2015 nine oil and gas companies went insolvent in total compared to 16 in 2016 alone. This is due to the fall in oil prices from $120 (£98) to $50 (£41) per barrel.
Jeremy Willmont, head of restructuring & insolvency at Moore Stephens says: ‘The collapse of the price of oil has stretched many UK independents to breaking point.
‘The last 15 years has seen a large increase in the number of UK oil & gas independents exploring and producing everywhere from Iraq to the Falkland Islands. Unless there is a consistent upward trend in the oil price, conditions will remain tough for many of those and insolvencies may continue.’
Companies are having problems refinancing loans as they come up for renewal as banks look to cut their exposure to the sector.
Banks are also negotiating with some companies over an increase in the interest rate they pay on a loan or for one off payments to pay the bank where a loan agreement has been broken due to the fall in prices.
The rise in insolvencies is the same in North America where 90 companies filed for bankruptcy from the beginning of 2015, 48 since January 2016.
Michael Simms, oil and gas partner at Moore Stephens, says: ‘North Sea oil producers face further headwinds from decommissioning costs of offshore rigs – that’s a very significant headache for companies that are already financially strained.
‘North Sea projects are also lagging behind in terms of attracting capital investment. The relatively stable political environment that North Sea investment benefits from is offset by the higher costs of production.’
Number of oil and gas company insolvencies per year: