The rows of giant offshore drilling rigs scattered around the Scottish coast provide spectacular evidence of the almost total collapse of the U.K. offshore industry in the wake of the oil price collapse.
The fragile price rally after the Organization of Petroleum Exporting Countries' agreement to curb its runaway production came too late to reverse the decline. In Aberdeen, the oil capital of the United Kingdom, real estate prices are dropping as U.S. oilmen pack their bags. Welfare queues are lengthening as slashed oil company budgets take their toll the on scores of small firms supplying the offshore industry. The fabrication and construction yards also face a bleak future as their order books thin out.Oil production in the U.K. sector of the North Sea has tumbled to a three-year low of around 2.2 million barrels a day from a peak of nearly 2.8 million b/d, as the oil companies extend their summer maintenance shutdowns, in effect disguised production cuts.
The drilling rigs are bearing the brunt of the shakeout, with more than 40 laid up compared with only five a year ago. The working rigs are fetching about $10,000 to $12,000 a day, a 50 percent drop in three months and less than a fifth of charter rates in the heyday of the late 1970s.
Charter rates for supply boats are falling in sympathy and helicopters hire rates have dropped by a third this year.
Rigs ordered when oil prices were at $30 a barrel and rising are now being delivered into a devastated market. Mr. Mac, the biggest jack-up rig ever built in the United Kingdom, which was christened by the Queen on the river Clyde a couple of weeks ago, does not yet have a charter. The owner, Transworld Drilling U.K., hopes to find work for the rig by November.
The French-owned UIE yard, which built the $80 million Mr. Mac, is running out of work and up to 900 of its 1,400 workers may be laid off.
The collapse of the North Sea market has a worldwide impact on the oil industry. Six of the rigs sitting at anchor off the Scottish coast are owned by Houston-based Global Marine, currently in "Chapter 11" proceedings.
There will not be a big impact on employment. Only 100,000 jobs are directly or indirectly related to the oil industry, 60,000 of them in the once-thriving area around Aberdeen. The Royal Bank of Scotland has warned that some 8,000 jobs with the drilling companies are a risk because of lower oil prices. The off-field supply industry could lose 15,000 jobs in the wake of investment cutbacks by the oil companies.
Oilmen do not expect the drilling market to pick up unless prices reach $20 to $22 a barrel, the minimum level to justify development of small and marginal fields in the North Sea.
Projects that looked promising a year ago before the oil price collapse have been put on hold. Last summer, when oil companies were confident that prices would hold steady at $26 to $28, analysts were talking about new North Sea fields containing up to 2 billion barrels of crude being brought on stream by the early 1990s involving capital spending of more than 8 billion.
Aberdeen's woes have spread south to the London Stock Exchange, where brokers are bracing for a spate of bankruptcies and forced mergers among the smaller independent oil companies that rely almost exclusively on production
from North Sea acreage and downstream operations and large cash reserves to cushion them from the effects of low crude prices.
The turnaround in the industry's fortunes has been dramatic. The oil companies' 3 billion cash flow from North Sea operations in 1985 could plunge to a negative figure this year for the first time since oil was landed in the mid-1970s.