The British industry body OGUK has warned that up to 30,000 jobs could be lost in the sector as companies 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...
The British industry body OGUK has warned that up to 30,000 jobs could be lost in the sector as companies 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 OGUK’s Business Outlook: Activity and Supply Chain report, which is based on a survey of its membership. The 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 average oil price for March was $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 $16/bbl on April 22.
OGUK anticipates that capex in the UK industry could fall to between £3.5- 4 billion, the lowest investment since 2000 and among 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 warns that drilling activity this year could be down by 50% on 2019 levels – pushing activity levels to record lows.
Revenues and margins across the supply chain are expected to fall by 20-30%, on top of reductions seen during the last downturn. 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, 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 identified that they were successful in securing funding through government Covid-19 financial packages.
The three-stage framework proposed by OGUK includes recommendations to improve current Covid-19 financial packages as well as the development of a sector deal which will support the supply chain and accelerate the UK towards a net zero future.
OGUK chief executive Deirdre Michie said: ‘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.’
