Oil extracted in the North Sea is among the world’s most expensive to produce, due to strong UK labor unions and unfavorable natural conditions in the region. In today’s oil market, that’s a bad situation to be in, and the sector is imploding. The Sunday Times reports:
The combined market value of 112 publicly traded oil companies — the entirety of Britain’s listed [oil] industry excluding the top three of Shell, BP and BG — is the same as that of Marks & Spencer: £7bn…Two years ago, just one of the 112 — Tullow Oil — was worth more than Britain’s preferred seller of sandwiches and underwear, with a healthy £8.2bn market value. Its fall has been stunning. As the numbers above attest, it is but one of many.
North Sea oil was already waning even before prices started plunging, but many companies delayed expensive offshore decommissioning projects in the hope that they might wring out every dollar from these quickly maturing fields. That may have made sense when oil prices seemed stable at over $100 per barrel, but with Brent now trading under $32 (!) per barrel, many of these North Sea projects are no longer profitable. But abandoning these plays will incur further costs, which places these firms in quite the bind.
This could play into the politics of Scottish independence. With the UK facing a possible vote on Brexit, Scotland could have some tough choices ahead. The EU is much more popular north of the border than among the English, and it’s long been thought likely that Brexit would soon lead to Scottish secession. But life in the EU, on the euro, with no oil revenue to speak of, is not an attractive proposition.