Recession may push North Sea oil and gas production into a much steeper decline than previously forecast due to the difficulties faced by smaller oil companies in getting finance to pay for exploration and oilfield development.

Industry leaders warned in Aberdeen yesterday at a media briefing that up to a quarter of the 20 billion barrels of oil known to be still recoverable from the North Sea may stay in the ground because of the contraction in the lending capacity of the banks and other financial institutions.

They added that this and uncertainties around future government tax policies towards the offshore industry could cost the government up to £250 billion in lost tax revenues.

The warning was given on the eve of next week’s Offshore Europe oil exhibition and conference in Aberdeen, which will bring 40,000 delegates from around the world to the city and with the publication of new research on the impact of recession on the world-wide oil industry.

The research, a survey of chief executives and directors of companies in the UK, the USA, and Canada, employing about 740,000 people in 130 companies, showed that half of all oil firms felt they had been very badly or seriously affected by recession and were vulnerable to being badly damaged by it.

Rita Marcella, Dean of Aberdeen Business School at Robert Gordon University and the survey leader, said that 89 per cent of the vulnerable firms named the banking crisis as having had a serious impact on business performance.

Some, Professor Marcella said, had spoken very emotively about the financial crisis with one describing the effects of having been let down by the bank as “our bank failed us — it’s like your wife dead in bed”.

Duncan Skinner, chief financial officer of PSN, an oilfield servicing company which has grown to be one of Scotland’s biggest private firms since management bought it four years ago from its American owner, said he doubted whether the banks would have backed the buy-out in today’s financial climate.

Underlining the significance of having secure finance, he said: “I happen to be in the position where I have a 10-year banking facility and I am in year four. This time last year we saw only modest growth in 2009. But now I am in the position of looking to see us about 20 per cent ahead of forecast this year.”

But he had recently met directors of much smaller firms, including a start-up business with highly promising technology, who were unable to get finance and faced a tough time.

This is an acute problem in the North Sea which, as a mature oil province where production levels have been falling since 1999, is now much more dependent on smaller independent oil companies who are moving in as the big major oil firms are moving out.

Mr Skinner highlighted recent research by Alex Kemp, Professor of Petroleum Economics at the University of Aberdeen, which argued that as much as five billion barrels of recoverable oil might stay underground because extraction was dependent on small companies which, faced with lack of finance, may be unable to produce the oil.

Mike Tholen of Oil and Gas UK, an industry lobbying body, said that the British government needed to think long-term about this problem. He contended that offshore tax rates of 50 per cent meant that at an oil price of $50 a barrel, below the current price of about $70 a barrel, future governments could lose about $125 billion in tax revenues or double that sum if crude oil prices reached $100 a barrel.

Bob Collier, chief executive of Aberdeen and Grampian Chamber of Commerce, said that it was not just tax revenues from oil extraction which were at stake, but the economic activity and consequent revenues from onshore work as well.

The Aberdeen chamber, he said, which was handling a 15 per cent increase in export documentation this year and last, was the only chamber in Britain recording an increase in exports.

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