The stark warning comes as companies in the sector report an increasingly grim outlook as they deal with the fallout from the coronavirus pandemic and a 20 year low in oil prices and a 14 year low for gas.
The industry is expected to see a dramatic reduction in revenue, sparking concerns about the ability of some companies to survive a downturn that is likely to be even more severe than the one in 2015 which the sector is just emerging from.
The figures are published in a report issued today by OGUK following a survey of its membership.
The Business Outlook: Activity and Supply Chain report, calls for urgent action to protect energy security, jobs, and energy regions. OGUK has asked governments and regulators to support a three-stage framework to support the sector in dealing with the immediate crisis while positioning it to play a key role in the UK’s transition to a net zero future.
The report notes:
- The average oil price for March was US$22.5/barrel, a 65% decrease compared to January 2020. This trend has continued in April with Brent price falling to its’ lowest point for 20 years to US$16/bbl on 22 April.
- For the first time, WTI became negative in the US following an over-capacity and lack of local storage. (WTI is a crucial regional benchmark for North America).
- There is now a stark contrast in sentiment compared to the beginning of the year with all E&P companies and 93% of supply chain firms reporting a worse or significantly worse outlook for 2020.
- OGUK anticipate that CAPEX could fall to between £3.5-4 billion, the lowest investment since 2000 and amongst the lowest levels of investment since the early 1970s. OGUK also anticipates that OPEX will be reduced by 10-20%, compared to expectations at the start of the year, to around £6-7 billion.
- OGUK also warns that drilling activity this year could be down by 50% on 2019 levels – pushing activity levels to record lows.
- The position of many areas of the supply chain is increasingly fragile. Revenues and margins across the supply chain are expected to fall by 20-30%, on top of reductions seen during the last downturn. The impact on businesses will vary depending on their position in the industry, with some areas of the supply chain expected to see greater reductions.
- Although there is still a significant degree of uncertainty in estimates affecting the next 12-18 months, based on company feedback, OGUK currently anticipates that the level of direct and indirect jobs supported by the industry could contract by up to 30 000 during this period.
- The survey feedback also indicates that as part of their response to the crisis more than three-quarters of supply chain companies plan to increase their non-oil and gas work this year.
- Around 30% of respondents to the recent business survey identified that they were successful in securing funding through government Covid-19 financial packages, with over 40% sounding out the different options as this report went to release.
- The three-stage framework proposed by OGUK covers: immediate needs, industry recovery and accelerating to a net zero future. It includes recommendations to improve current Covid-19 financial packages, retaining a sector leading and progressive regulatory, fiscal and policy framework, as well as the development of a sector deal which will support the supply chain and accelerate the UK towards a net zero future.
Commenting on the report, OGUK Chief Executive, Deirdre Michie, said: “Like so many industries, our members have been profoundly impacted by Covid-19.
“With historic low oil and gas prices coming so soon after one of the most severe downturns our sector has experienced, these findings confirm an especially bleak outlook for the UK’s oil and gas industry. If the UK is to maintain its supply of domestic energy, protect jobs and build the critical infrastructure it needs to transition to a net zero future, ours is an industry worth fighting for.
“It’s why OGUK is today outlining a three-stage framework with a range of measures for governments and regulators to support industry now, stimulate a recovery and accelerate the transition to a net zero future.”
Read the article online at: https://www.oilfieldtechnology.com/special-reports/28042020/oguk-calls-for-urgent-action-to-preserve-jobs-and-energy-security/
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