UK gas and petroleum companies at greater risk of insolvency

R3, the association of business recovery professionals, has warned that the number of petroleum and gas extraction companies based in the South East that are at risk of insolvency has risen for the second month in a row.

According to figures released by the organisation, the number of such companies at higher than normal risk of insolvency rose by 7.28% this month to 21.5% – meaning one in five companies are at risk. The rise in petroleum and gas companies at risk of insolvency rose even more sharply last month, with an increase of 12.73%.

The figures concentrated on companies in the South East but the analysis was just as gloomy throughout the UK. Petroleum and gas extraction companies based throughout the UK as a whole experienced a slightly smaller rise, with an extra 5.02% becoming more at risk of insolvency this month. This took the total number of such businesses in the UK at higher risk of insolvency to 24.65%, or just under a quarter.

With this many of the UK’s businesses in the sector facing potential difficulties, it’s imperative that struggling companies seek help as soon as possible. This could involve business restructuringand other steps that could help them stay afloat through a particularly difficult time.

The situation has been caused by the plummeting price of crude oil. The price of a barrel of oil has fallen by more than 70% since the summer of 2014 and demand for fuel has stayed lagging behind production on a global scale. This now appears to be catching up with extraction companies based in the South East and elsewhere in the UK.

Nor is it a problem restricted only to UK businesses. By the end of 2015, low oil prices had pushed more than 40 US energy companies into bankruptcy. There are signs that supply and demand might recover some parity by the end of 2016 but the price of crude oil is unlikely to bounce back to the highs of the past decade.

By Phil Smith

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