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UK North Sea oil and gas companies' profitability near 5-year low

Wed, 09th Jul 2014 09:46

LONDON, July 9 (Reuters) - North Sea oil and gas companiesmade the lowest profits in nearly five years during the firstthree months of this year, British data showed on Wednesday.

The Office for National Statistics said the rate of profitat firms exploring for and extracting oil and gas sank to 27.6percent in the first quarter of 2014, down from 31.1 percent inthe last three months of 2013 and its lowest since Q2 2009.

"Activity in the oil and gas extraction sector increased by0.8 percent in Q1. However the industry has been in long termdecline, contracting in every year since 2002," the ONS said.

Profits from North Sea oil have been a big source of taxrevenue for Britain, but the cost of extracting diminishingreserves has increased in recent years, and is one factor widelyblamed for the country's weak productivity.

The ONS added that profits in the sector were closely linkedto oil prices. Oil prices in dollars were little changedin the first three months of 2014 compared to the previousquarter, although sterling's strength against the dollar wouldhave reduced the sterling price of a barrel of oil.

There was better news from other parts of the economy, wherecorporate profitability picked up, rising to a net rate ofreturn of 11.3 percent, above average for the past five years.

"The recent overall improvement in corporate profitabilityin the first quarter supports hopes that companies will continueto invest at a decent rate over the coming months, which iscritical for prolonged healthy, balanced growth," said HowardArcher, chief UK economist at IHS Global Insight.

"Sustained strong business investment is also important tolifting UK productivity which remains a source of concern," headded.

Profitability in the services sector rose to 15.0 percentfrom 14.4 percent, while manufacturers' profitability fell to9.3 percent from 11.8 percent.

* For the full release, see http://www.ons.gov.uk/ons/dcp171778_370556.pdf (Reporting by David Milliken, editing by William Hardy)

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