Oil and gas price slide leaves support for offshore UK firms ‘paper-thin’

The UK’s offshore oil and gas industry is in a “paper-thin” position amid the most dramatic fall in oil price in almost 30 years, plunging gas prices and the global impact from Covid-19, according to a report released today.

OGUK is urging government intervention to ensure oil and gas supply in extraordinary times.

Representative body OGUK has warned of “severe pressures” building up across the sector’s supply chain which are undermining its businesses, jobs and expected economic contribution.

The study predicts that oil and gas operators will experience negative cash flow this year, with a cocktail of fresh concerns forming as the industry was beginning to emerge from one of the most prolonged and severe downturns in its history.

The UK supply chain, which had remained under significant pressure, with tight margins and relatively low activity levels in the wake of the downturn, is not equipped to cope with renewed uncertainty, said OGUK.

It now forecasts drilling levels will fall back to lows last seen in 2016 while capital investment could decrease by up to 30 per cent.

In the first of a series of business outlook reports, OGUK called for backing from the government and requested urgent meetings with ministers to ensure the industry can maintain secure oil and gas supply “in the face of extraordinary difficulties”.

‘Paper-thin position’

Chief executive Deirdre Michie said: “Businesses and industries across the UK are facing extraordinary pressures but coming so soon after one of the worst downturns in our history, this report shows that this sector is now in a paper-thin position.

“The offshore oil and gas sector is part of the UK’s critical infrastructure, providing the secure and affordable energy the country needs and is a key contributor to the economy in terms of supporting hundreds of thousands of skilled jobs, businesses and our wider economic contribution.

“Action is needed now to ensure the sector doesn’t lose the skills, experience and infrastructure it needs to meet the UK’s energy needs of today as well as help deliver its net zero ambitions in future.”

Michie urged ministers to consider a Covid-19 resilience package to “give some reassurance” to the regions, businesses and jobs supported by the oil and gas industry.

OGUK market intelligence manager Ross Dornan added: “The first week of March saw the most dramatic fall in oil price in almost 30 years and it remains uncertain as to how the market is going to evolve in as the coronavirus impact increases each day.

“Alongside this, the gas price has more than halved in the last 12 months, and we face a situation where E&P [exploration and production company] production revenues are set to be almost 50 per cent lower than they were two years ago despite the same level of output.”

The body said it was working with industry, regulators and government to understand how it can protect supply chain companies and jobs.