No apocalypse just yet, says KPMG’s top oil and gas man in Aberdeen

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The four horsemen of the apocalypse are not about to show up in Aberdeen but Europe’s energy capital is facing a serious downturn” in its fortunes, an oil and gas expert said last night.

Alan Kennedy, UK oilfield services lead partner in the Aberdeen office of professional services firm KPMG, was speaking in advance of an energy industry breakfast “summit” in the Granite City.

The event will be hosted by trade body Oil and Gas UK (OGUK) and KPMG at Aberdeen Exhibition and Conference Centre, and will focus on the impact of lower oil prices on the north-east economy.

Mr Kennedy said: “We are all too acutely aware of how the national and international media’s spotlight on oil price volatility appears to the outside world to portray an industry in crisis.

“Despite the sharp price drop and cost-cutting exercises announced, we are not prophesising the arrival of the four horsemen of the apocalypse on Union Street.

“However, we expect a serious downturn and challenges ahead which are already beginning to impact significantly.

“In the North Sea – where we were facing a decline in investment anyway – the price drop further puts into focus the steps needed to prolong the life of the basin, the increasing urgency of implementing the Wood Review recommendations and the debate on the fiscal regime.”

Tomorrow’s gathering will bring together operators, service providers, funders and advisors to discuss ways all parties can work together to deliver a sustainable future for the industry.

OGUK’s outgoing chief executive, Malcolm Webb, is the chairman for an expert panel discussion between Wood Group chief executive Bob Keiller, KPMG oil and gas head Anthony Lobo and industry analyst Beth Mitchell.

The event will also focus on what has been learnt from previous price crashes. In 2008 the crude oil price fell from over $140 a barrel to the levels currently being seen. The price recovered by 2010 and the industry moved on to an unprecedented sustained period of price stability.

Mr Kennedy said: “There was also a price crash in 1986, when the oil industry witnessed a new and extended era of low priced crude – and saw little in the way of sustained price increases for many years.

“There are differing views as to whether we are in 2008 or 1986? An alternative view is that with the advent of US shale, the historical supply and demand drivers and levers have changed, with (producers’ cartel) Opec now a price taker rather than price maker, and so we are in unchartered territory.

“At $60 a barrel, sustaining profitability in operations in the North Sea is a real challenge. The twin areas of cost and cash liquidity are, therefore, expected to be the key priority for all.”

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