From Aberdeen (IF): The major problems facing the drilling industry become more apparent as each week passes.

Archer, which has more than 8,000 employees worldwide at locations including Aberdeen, has revealed it will lose about 1,000 jobs. No breakdown on the location of where the jobs will go, but the driller’s North Sea operations are expected to be among those worst affected.

This will be another blow to the Aberdeen economy, which has been hit by a series of staff cuts by leading industry firms.

News of Archer's job cuts came on the same week it was confirmed by Oil & Gas UK that the number of exploration wells drilled in UKlast year was the lowest since 1965.

Archer reported Q4 results above expectations, but it said there had been a rapid deterioration at the end of 2014 and the beginning of 2015. The sharp decline in the oil price meant many of Archer’s customers had decided to significantly reduce investment and expenditure.

These cuts are most prominent in the US land market, but the company also said there had been a reduction in activity in the North Sea with customers on the Norwegian Continental Shelf last year cutting spending as part of longer term cost-saving initiatives. Around 11% of the company’s workforce will now go.

The difficulties which drillers and others in theindustry find themselves in are highlighted in the latest activity survey from OGUK. Exploration activity in 2014 was significantly worse than anticipated, with only 14 of the expected 25 wells actually drilled.

OGUK said exploration in British waters has collapsed over recent years. The situation is unlikely to improve in 2015 with just eight to 13 wells anticipated. Only 18 appraisal wells were drilled last year and the outlook for this year is worse, with just five wells forecast.

Malcolm Webb of OGUK said the survey paints a bleak picture, but it also identifies the basin’s potential.

Opex in UK waters rose by almost 8% to £9.6bn in 2014 and, on a unit of production basis, reached a record high of £18.50/bbl.

Falling oil price meant that revenues dropped to just over £24bn for the year, the lowest since 1998. This, combined with rising costs, resulted in a negative cash-flow of £5.3bn for the basin, the worst since the 1970s.

Cost over-runs and schedule slippage on several large projects pushed capital investment in 2014 beyond expectations to £14.8bn with half spent on just 12 fields.

As these large projects move from development into production, OGUK said there is little new investment to replace them. Annual investment in sanctioned projects is forecast to decline rapidly and could collapse to £2.5bn by 2018.

Webb said, that the industry realises that its cost base is unsustainable. Cost and efficiency improvements of up to 40% are required to give this sector a viable future. An adjustment is underway, but cost control alone is not the answer.

‘The basin needs sustained, high investment - £94bn...to recover the 10bboe in known reserves. This is why a concerted effort on ...tax, regulation and cost...to make the basin more attractive to investors and ensure that significant...capital comes to the UK’ is required, Webb said.