Isis threat prompts oil firms to make investment cutbacks

TWO more oil companies pared back their spending yesterday amid plunging prices as the International Energy Agency (IEA) warned that the rise of Isis in Iraq and Syria could severely hit supplies over the next decade.

The oil-services company Wood Group said it would slash costs by more than $30m (£19.5m) this year in response to lower prices and pledged to apply "tougher filters" to potential takeover targets.

The producer Dragon Oil, fresh from cutting its 2015 capital-expenditure budget by a quarter, also showed the strain of falling prices, posting a 16 per cent drop in full-year operating profit to $578.6m.

The company's profits were further hit by a $24m impairment charge for an exploration project in the Philippines which failed to find any oil.

BP, Shell and Tullow have all reined in spending to cope with the falling prices.

Brent crude extended its rally beyond $62 a barrel yesterday, still well below last summer's price of $115, after the IEA said conflict in the Middle East looked set to disrupt oil supplies in the coming years.

Analysts warned, though, that the recent rally might be short-lived as supply still exceeded market demand.

The agency's top economist, Fatih Birol, said the rise of Isis made it much harder to attract the investment necessary to prevent an oil shortage during the next decade.

"The appetite for investments in the Middle East is close to zero, mainly as a result of the unpredictability of the region," he said.

Shares in Wood jumped nearly 5 per cent, to 660p after the group reported an 11 per cent rise in profit to $414.5m. Its chairman, Ian Marchant, praised the "relative resilience" of the business amid the turbulent market.

Dragon's shares fell 1 per cent, to 565p, after the group lifted its dividend by 9 per cent.