KPMG takes over at First Oil Expro as whole industry “sits at edge of a chasm”

It has since emerged that Enquest and Cairn Energy will take on the company’s 15 per cent stake in the Kraken North Sea Oil field.

Enquest will now have a 70.5 per cent interest in the vast field, and Cairn a 29.5 per cent interest.

First Oil began reviewing its operations last year as the oil price fell and started the process of selling parts of the business.

Zennor Petroleum is expected to take on its interests in the Mungo and Monan, Bacchus, Cormorant East and Causeway fields.

The price of oil has plummeted by 70 per cent since summer 2014 to about $30 a barrel.

Blair Nimmo, joint administrator and head of restructuring at KPMG in Scotland, said the sales, via the administration process, were a reflection of the “significant challenges facing UK North Sea oil and gas companies in the current oil price environment”.

He said: “These sales will ensure that the group’s four largest field interests are smoothly transferred to new ownership, and provide time to resolve the position concerning the smaller assets in the group’s portfolio.”

News of First Oil Expro’s fate emerged as industry body Oil and Gas UK released a new reports warning that the oil and gas production industry in the North Sea is “at the edge of a chasm”.

The report claims that investment in new offshore oil and gas projects is collapsing despite cost-cutting efforts, with less than £1bn expected to be spent on new projects this year, compared to a typical £8bn per year in the last five years.

Oil and Gas UK said exploration remained at an all-time low with no sign of improving.

The survey said the industry’s drive to improve efficiency, reduce operating costs and increase production has had “marked success” and success per exploration well drilled in 2015 was the highest for 10 years.

However, the industry body warned if the oil price remains at about $30 for the rest of 2016, more than 40 per cent of all UK Continental Shelf (UKCS) oil fields were likely to be operating at a loss - deterring further exploration and investment.

The number of fields expected to cease production between 2015 and 2020 has risen by a fifth to more than 100.

The report published today by the body also shows that revenues fell by almost one-third in 2015, despite a rise in production and a 42 per cent cut to costs – prompting fears that the “worst may be yet to come”.

Oil and Gas UK chief executive Deirdre Michie said: “We are an industry at the edge of a chasm.”

She added: “Together we need to transform the basin into a highly competitive, low tax, high activity province, which is attractive to a variety of operators and sustains and supports the important supply chain based here.

“We have a huge task ahead but the prize is worth fighting for. The UK Continental Shelf (UKCS) still holds up to 20 billion barrels of oil equivalent (boe) which can continue to provide a secure supply of energy for the country, support hundreds of thousands of jobs, generate several billion pounds in corporate and payroll taxes from the supply chain and stimulate countless technological innovations.”

A UK government spokesperson said: “This government is clear that the broad shoulders of the UK are 100% behind our oil and gas industry and the thousands of workers and families it supports.

“We have established the Oil and Gas Authority to drive greater collaboration and productivity within industry, and announced a radical £1.3bn package of tax measures in the March 2015 Budget to ensure the UKCS remains an attractive destination for investment and safeguard the future of this vital national asset.

“In January this year we announced a further package of measures including another £20m funding for a further round of seismic surveys, and our strategy to maximise economic recovery of the UKCS.

“We look forward to the industry capitalising on this, to deliver efficiencies and make the industry more robust now and for the future.”

A Scottish government spokesman said: “The North Sea still holds significant potential but this report highlights that further action is needed to encourage investment. Maximising economic recovery from our oil and gas resources will require the appropriate business conditions for investment in exploration, appraisal and development.

“The Scottish government will continue to do all that we can to support the sector. It is clear, however, that the UK government must take urgent action to substantially reduce the headline rate of tax at the March Budget and incentivise exploration. The fiscal regime must not be a barrier to investment and activity in the North Sea.”