Requests for company insolvency help is on the increase as financial distress caused by the sharp fall in oil prices is not only affecting the value of people’s personal savings and pensions pots. The decline in the FTSE to ‘bear market’ status, largely blamed on falling oil prices, has been dramatic, with a 20 percent fall since the highs of April last year. However, the latest research has shown that UK companies are also starting to suffer, with a sharp rise in the number of oil and gas companies going into liquidation and agreeing on voluntary arrangements in the past year.
According to research by the accountancy firm Moore Stephens, 28 oil and gas service firms entered insolvency in 2015. That’s up from 18 in 2014, and just 6 in 2013. This rise is “an almost inevitable result” of the fall in oil prices, which has led to the cancellation of projects around the world.
A rising tide of financial distress
The pain caused by falling oil prices has resulted in a rising tide of financial distress across the sector. The prices of crude oil have fallen by as much as 75 percent a barrel, down from a peak of $115 in the summer of 2014.
Weakening Chinese demand for oil combined with strong production in the US is the primary cause of the tumbling prices. This has been exacerbated by Opec’s decision not to cut their output. The result has been a fall in prices to less than $30 a barrel, prompting fears that there is still more anguish in the sector to come.
Close to $400bn of new oil and gas schemes have also been shelved, with it currently costing more to get crude oil out of the ground than the price companies can recoup for a barrel. If oil prices stay at a similar level in coming months, a lot of projects will continue to be unviable. Inevitably, the result will be a further increase in the number of companies having to downsize, or worse still, become insolvent.
An international problem
While UK oil and gas companies are certainly suffering, they are by no means the only ones struggling in the face of the oil price plunge. The US-listed Schlumberger company, the world’s largest oilfield services group, reported just last week that it had cut 10,000 jobs in the past three months. It also made a $1bn loss in the final quarter of 2015.
There were also warnings from Royal Dutch Shell that its profits for the fourth quarter would fall at least 40 percent when compared to the same period last year. The price falls are also expected to be felt across other sectors, with crude collapses and the decline in commodity markets affecting up to 175 energy and mining companies.
An increase in mergers and acquisitions
There is also expected to be an increase in mergers and acquisitions in the sector. Larger oilfield services companies are looking to capitalise on the financial distress by snapping up some of the smaller companies that are struggling.
The low prices are bringing intense cash-flow challenges for many firms. 70 percent of 200 senior executives who responded to a recent survey said they would actively consider an acquisition within the next year.
Still no sign of respite
Opec has historically cut production in the face of falling oil prices, but this time around the group, led by its most powerful member Saudi Arabia, has decided there will be no reduction in supply.
Given this response, there are fears that prices could fall further still. Many industry analysts have slashed their oil price forecasts for 2016, with Morgan Stanley predicting prices could hit a low of $20 a barrel, while economists at the Royal Bank of Scotland think a $16 barrel is possible. If you are an oil based company needing help call today on 08000 746 757, we have helped many one-man limited companies recently across the UK.