UK offshore capex, drilling may plummet, report warns

April 28, 2020
Up to 30,000 jobs could be lost in Britain’s offshore oil and gas industry if current global issues continue, Oil & Gas UK has warned.

Offshore staff

LONDON – Up to 30,000 jobs could be lost in Britain’s offshore oil and gas industry if current global issues continue, Oil & Gas UK (OGUK) has warned.

Companies across the sector are struggling to deal with the fallout from COVID-19, the 20-year low in oil prices and a 14-year low for gas.

The industry expects revenues to tumble, with concerns over the ability of some companies to survive having just emerged from the downturn of 2015.

OGUK’s latest Business Outlook: Activity and Supply Chain report, calls for urgent action to help protect energy security, jobs, and energy regions in Britain.

It has asked the UK and Scottish governments and regulators to support a three-stage framework to help the sector ride the immediate crisis.

Among the report’s findings, all E&P companies active on the UK continental shelf and 93% of supply chain companies report a worse or significantly worse outlook for 2020.

Capex across the sector could fall to £3.5-4 billion ($4.37-4.99 billion), the lowest since 2000 and a level not seen since the early 1970s. Opex will likely be 10-20% down on expectations at the start of the year, at around £6-7 billion ($7.49-8.74 billion).

Drilling activity this year could be 50% lower than in 2019, and close to record lows.

Revenues and margins across the UK’s supply chain appear set to fall by 20-30%.

In 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 have managed to secure funding through the UK government’s COVID-19 financial packages.

OGUK’s three-stage framework includes recommendations to improve current COVID-19 financial packages, retaining the UK’s progressive regulatory, fiscal and policy framework, and developing a deal for the sector that will support the supply chain and accelerate the UK towards a net zero future.

During a briefing late last week, the association’s UK Upstream policy director Mike Tholen said that despite the current severe difficulties, the UK industry was also looking to a future point when more normal offshore activity returns and the measures the sector must take to provide the oil and gas Britain needs for many years to come.

One recent blow for the supply chain was INEOS’ decision to suspend the annual maintenance shutdown of the Forties Pipeline System in the central North Sea that handles production from many UK and some Norwegian fields.

Tholen said the supply chain was working hard to keep open the Grangemouth terminal in eastern Scotland that receives the oil. Although demand for some of its by-products such as kerosene (for aeroplanes) and fuel for road vehicles was heavily down, the situation appears to be manageable for the moment.

He pointed out that Grangemouth’s ability to keep operating is critical to Scotland’s economy.

But the dual impact of quarantining measures for the coronavirus and the oil price means that many planned projects in UK waters are being put on hold. And this, he said, has occupied much of OGUK’s recent focus: “How fast can that activity return?”

“In this situation, over five weeks into the lockdown, many companies are still trying to get to grips with the impact on their business.

“On the positive side, many operating companies have hedged positions that allow them to take a longer-term perspective of the oil price - and much of the portfolio across the UK continental shelf is still competitive at $30/bbl, allowing the industry to keep things going if prices stay at their current level for a while.”

However, many companies are torn between the need to try to protect their businesses and/or support their staff through the current environment, he cautioned.