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

LONDON, July 9 Wed Jul 9, 2014 5:46am EDT

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

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

"Activity in the oil and gas extraction sector increased by 0.8 percent in Q1. However the industry has been in long term decline, contracting in every year since 2002," the ONS said.

Profits from North Sea oil have been a big source of tax revenue for Britain, but the cost of extracting diminishing reserves has increased in recent years, and is one factor widely blamed for the country's weak productivity.

The ONS added that profits in the sector were closely linked to oil prices. Oil prices in dollars were little changed in the first three months of 2014 compared to the previous quarter, although sterling's strength against the dollar would have reduced the sterling price of a barrel of oil.

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

"The recent overall improvement in corporate profitability in the first quarter supports hopes that companies will continue to invest at a decent rate over the coming months, which is critical for prolonged healthy, balanced growth," said Howard Archer, chief UK economist at IHS Global Insight.

"Sustained strong business investment is also important to lifting UK productivity which remains a source of concern," he added.

Profitability in the services sector rose to 15.0 percent from 14.4 percent, while manufacturers' profitability fell to 9.3 percent from 11.8 percent.

* For the full release, see here (Reporting by David Milliken, editing by William Hardy)

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