North Sea Oil Exploration Firm Collapses
Credit crunch and tumbling price of crude forces Oilexco into administration ? and experts warn of similar failures
One of the most active North Sea oil exploration companies has been forced into administration just six months after the crude price hit record highs of $147 a barrel, in a development that could further undermine Britain's energy security.
Administrators have been called in to try to rescue Oilexco North Sea and industry experts today warned that the collapse was likely to be the start of a trend, given the credit crunch and the recent slump in the value of crude to little over $40 a barrel.
Oilexco, with a base in Aberdeen, already operates several British oil fields including the Brenda and Nicol facilities, and was poised to bring on stream a production platform in the Shelley field. Barely two months ago, the highly active company was awarded eight new licenses by the Department of Energy and Climate Change.
Ernst & Young, the accountants brought in to act as administrators, said Oilexco North Sea began experiencing difficulties in the middle of 2008 when it needed to raise cash for new developments when banks were cutting back on lending. "This is a problem that a lot of smaller oil and gas companies are facing. This is likely to become a trend. There is likely to be more consolidation and takeovers," said a spokeswoman for Ernst & Young.
Al Stanton, an oil analyst in the Edinburgh office of Royal Bank of Canada, agreed. "There were some problems unique to Oilexco but there are some wider problems for the sector. Banks are unwilling to lend money to companies with relatively small cash flow and Oilexco will not be the end of it," he said.
The City has become nervous about funding North Sea projects, some of which need oil to be at $40 a barrel just to break even, and the 5% drop in BP's share price on Wednesday underlines the fact that every firm in the sector is being affected by the new energy environment.
The administrators intend to continue to run Oilexco while Merrill Lynch and Morgan Stanley search for a potential buyer. They are said to have already been approached by several interested parties about purchasing the whole or part of the assets.
Oilexco North Sea employs around 100 staff and is listed on the London Stock Exchange. It is a subsidiary of Oilexco Inc in Canada which is not affected by the administration.
The parent company's stock, already marked down dramatically since its North Sea subsidiary's problems were announced last year, fell a further 25% this week in heavy trading before recovering slightly today.
The shares are now worth 10p compared with a peak of 964p in July, at the height of the oil-price spike. Oilexco has been increasingly active in Britain since 2004 when it purchased minor interests in the Balmoral and Glamis light oil fields, which provided it with daily production that ranged between 140-200 barrels a day.
In 2007, it brought the Brenda and Nicol fields into production, which have averaged between 20,000 to more than 30,000 barrels, placing it in the top quartile of all companies in the UK North Sea.
The company hired two rigs to expand its drilling efforts. When it was awarded its eight new licenses in November, Arthur Millholland, president of the group, said: "This particular licensing round was considered by many in the industry to have the most desirable properties available in the last number of years. We are extremely pleased that we were able to obtain so many of the licenses we bid on, and our reputation as being the most active driller in the UK since 2004 no doubt assisted our efforts."
On new year's eve, the parent group issued a statement warning that Oilexco North Sea Ltd intended to file for administration "as soon as reasonably practicable".
It said Royal Bank of Scotland and its syndicate of banks had told Oilexco that day that they were "not prepared to advance any further funding" to its UK arm. That business is said to have needed almost $1bn to finance a heavy program that would have enabled it to bring more oil and gas fields on stream.
Administrators have been called in to try to rescue Oilexco North Sea and industry experts today warned that the collapse was likely to be the start of a trend, given the credit crunch and the recent slump in the value of crude to little over $40 a barrel.
Oilexco, with a base in Aberdeen, already operates several British oil fields including the Brenda and Nicol facilities, and was poised to bring on stream a production platform in the Shelley field. Barely two months ago, the highly active company was awarded eight new licenses by the Department of Energy and Climate Change.
Ernst & Young, the accountants brought in to act as administrators, said Oilexco North Sea began experiencing difficulties in the middle of 2008 when it needed to raise cash for new developments when banks were cutting back on lending. "This is a problem that a lot of smaller oil and gas companies are facing. This is likely to become a trend. There is likely to be more consolidation and takeovers," said a spokeswoman for Ernst & Young.
Al Stanton, an oil analyst in the Edinburgh office of Royal Bank of Canada, agreed. "There were some problems unique to Oilexco but there are some wider problems for the sector. Banks are unwilling to lend money to companies with relatively small cash flow and Oilexco will not be the end of it," he said.
The City has become nervous about funding North Sea projects, some of which need oil to be at $40 a barrel just to break even, and the 5% drop in BP's share price on Wednesday underlines the fact that every firm in the sector is being affected by the new energy environment.
The administrators intend to continue to run Oilexco while Merrill Lynch and Morgan Stanley search for a potential buyer. They are said to have already been approached by several interested parties about purchasing the whole or part of the assets.
Oilexco North Sea employs around 100 staff and is listed on the London Stock Exchange. It is a subsidiary of Oilexco Inc in Canada which is not affected by the administration.
The parent company's stock, already marked down dramatically since its North Sea subsidiary's problems were announced last year, fell a further 25% this week in heavy trading before recovering slightly today.
The shares are now worth 10p compared with a peak of 964p in July, at the height of the oil-price spike. Oilexco has been increasingly active in Britain since 2004 when it purchased minor interests in the Balmoral and Glamis light oil fields, which provided it with daily production that ranged between 140-200 barrels a day.
In 2007, it brought the Brenda and Nicol fields into production, which have averaged between 20,000 to more than 30,000 barrels, placing it in the top quartile of all companies in the UK North Sea.
The company hired two rigs to expand its drilling efforts. When it was awarded its eight new licenses in November, Arthur Millholland, president of the group, said: "This particular licensing round was considered by many in the industry to have the most desirable properties available in the last number of years. We are extremely pleased that we were able to obtain so many of the licenses we bid on, and our reputation as being the most active driller in the UK since 2004 no doubt assisted our efforts."
On new year's eve, the parent group issued a statement warning that Oilexco North Sea Ltd intended to file for administration "as soon as reasonably practicable".
It said Royal Bank of Scotland and its syndicate of banks had told Oilexco that day that they were "not prepared to advance any further funding" to its UK arm. That business is said to have needed almost $1bn to finance a heavy program that would have enabled it to bring more oil and gas fields on stream.
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