Oil and gas companies are facing hard times with 16 firms collapsing last year, according to accountancy firm Moore Stephens.
The firm’s research shows that 16 UK oil and gas firms became insolvent in 2016 compared to a total of just nine during the preceding four years.
This pattern has occurred, the firm said, as “the oil price slump bites”. Oil prices have dropped from $120 (£98) to just under $50 (£40) per barrel for most of 2016.
Moore Stephens added: “This has continued to drag businesses across the sector into insolvency.”
It said these companies are also having problems refinancing loans as they come up for renewal as banks look to cut their exposure to the struggling sector.
The firm added: “Banks are also negotiating with some companies over an increase in the interest rate they pay on a loan or for one-off payments to compensate the bank, where a loan covenant has been breached because of the fall in oil and gas prices.”
Moore Stephens described how hedging strategies had delayed the impact of falling oil and gas prices for some producers over the last few years, by guaranteeing them higher prices, but said that many of those contracts have now expired.
Jeremy Willmont, head of restructuring and insolvency at Moore Stephens, said: “The collapse of the price of oil has stretched many UK independents to breaking point.
“The last 15 years has seen a large increase in the number of UK oil and gas independents exploring and producing everywhere from Iraq to the Falkland Islands.
“Unless there is a consistent upward trend in the oil price, conditions will remain tough for many of those and insolvencies may continue.”
Moore Stephens also said there are risks involved for purchasers of the business of oil and gas companies that go into insolvency.
It said for example, approval may be needed from the relevant government if licences are to be transferred to a purchaser and decommissioning costs might also be inherited by the purchaser of assets held by an insolvent company.