Yahoo Finance North Sea debt battle to drag on as oil price forecasts are slashed
The North Sea’s struggle to overcome its multi-billion pound debt burden has been dealt a setback as hope for a recovery in oil prices begins to wither.
Experts cut their forecasts for the global oil market last week as the crude price slumped to 10-month lows, putting the market on course for the steepest first-half drop since the Nineties.
The reversal is a major concern for prominent North Sea drillers such as Enquest and Premier Oil, which may now face a much longer battle to reduce their debt pile. The pair were left with a combined debt burden of almost £5bn in the wake of the oil crash.
Kate Sloan, an analyst with Macquarie, warned that without higher prices the pair may struggle to overcome their high debt positions, potentially limiting reinvestment in the basin. She added that Enquest is likely to be the more successful in eroding its debt, while Premier could find itself unable to make material reinvestments to rebuild its equity position.
Tullow Oil is expected to emerge as one of the more resilient of the London-listed explorers due to its strong presence operating in low-cost basins off the African coast.
Macquarie has slashed its oil price projections for the next two years after warning that there will be too much oil being produced around the world until 2020. Its forecast for the rest of this year has fallen from an average price of $58.75 a barrel to $54.15/b. The price next year is likely to fall to $49.33/b, down more than $6 from $55.75/b.
Oil traders are understood to be increasingly doubtful that a deal between the world’s largest oil producers to limit supply will manage to cut crude stocks down to the target five-year average by next year – or keep them there.
The OECD’s commercial crude stocks are projected to stand at 230 million barrels more than Opec’s target by the end of the year, according to the US Energy Information Administration. This surplus could grow to 260m by the end of next year – even with an extension to the deal.
Oil production has climbed by 10pc in the last year, in large part due to the resurgence of the US shale industry combined with growing export volumes from Libya and Nigeria.
