Seatrade Maritime is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Offshore should reign in spending says Moore Stephens

Offshore should reign in spending says Moore Stephens
Moore Stephens has advised the offshore maritime sector to minimise its risk exposure and reign in spending in the wake of the tumbling oil prices.

Director Cassie Forman indicated that with oil down to $50 a barrel it is "not a time for speculative or non-essential spending" in the offshore sector.

"Any industry which suffers what is effectively a 50% reduction in income over a three-month period is going to suffer. But any sector where the revenue is predicated on the price of oil, such as the offshore maritime industry, is particularly susceptible because of its exposure to counter-party risk and potential credit line difficulties.

"Oil and gas majors are already cutting costs, and several have recently announced cuts to investment in a number of major projects. Smaller players are also reconsidering their capital deployment.

"There was a significant increase in the number of insolvencies of UK oil and gas services companies last year. Although this increase is from a relatively low base, it is significant because insolvencies in the sector have been rare over the last five years."

Forman indicated that the fall in oil prices "is certain to have played a significant part" in the OW Bunker scandal and ensuing bankruptcy. "References to major risk management and fraud losses, and to unrecoverable credit, have been common throughout all reports to date involving the company's collapse."

With huge amounts of additional capacity constantly coming online, companies must now exercise restraint to protect their finances, Forman emphasised. "With oil prices now at lowest level for five years or more, the offshore maritime sector needs to look at costs in light of its current reduced revenue stream. It is a time for strategic financial planning with experienced advisers who understand the risks peculiar to the industry."

"The sector also needs to make sure that it has proper contingency planning in place, and effective risk management procedures embedded into the everyday activities of the company. Sound corporate governance and a proper management structure and technical support systems are central to the ability to identify, control and ultimately mitigate risk."