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Number Of Oil Firm Insolvencies To Increase In 2016

An alarming number of oil and gas service companies in the UK are declaring bankruptcy, a trend that is expected to continue throughout 2016.

Number Of Oil Firm Insolvencies To Increase In 2016

Plunging oil price have been cited as the reason for sharp increase in insolvencies in the oil and gas industry.

In 2015, 28 oil and gas companies became insolvent, while just 18 faced the same situation in 2014, according to reports by accounting firm Moore Stephens.

The firm said the spike in insolvent service companies was an inevitable consequence of the drastic drop in oil prices and halting of investment projects globally, with an estimated $200bn worth of investments cancelled in 2015.

The report shows that in 2010, only 4 oil and gas companies were declared insolvent.

Over the last decade, companies in the oil and gas service industry grew their businesses based on high oil prices.  

Consequently, the fall in oil prices has caused financial difficulties in the industry.

Schlumberger, the oil services giant only recently announced that it had laid off 10,000 works in the last three months leading to January following falling oil prices.

Other industry reports indicate that the majority of companies in the oil and gas industry are making the same mistakes they made during previous oil gluts.

Most industry players are concerned over loss of human resources and the socio-economic effects of job loss.

Opec still resilient

According to a report by law firm Pinsent Masons, major players in the industry were looking to leverage the fall in oil prices by buying companies in financial distress.

In a survey of 200 executives in the industry, up to 70% said there were aggressively looking to acquire other firms by 2017.

Over the past 15 months, oil prices have plunged by 70%. The fall is mainly attributed to an oversupply in US shale.

Slow economic growth in Europe and China has further compounded the situation due to low demand of oil in these markets.

OPEC usually responds to falling prices by cutting production. However, this time, the group, led by Saudi Arabia, has completely refused to cut supplies.

According to most analysts, oil forecasts for 2016 remain stark and could go as low as $16 per barrel according to the Royal Bank of Scotland or down to $10 according to projections by Standard and Chartered.

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