FWB Park Brown recently hosted a networking lunch with key influencers from the UK’s Oil and Gas industry; an Independent Operator, an Investment Bank, prominent Advisory firms, Engineering Services and Logistics businesses. We met to explore the effect of the changing oil price on the future of the Industry. Bill McCall, Chair of FWB Park Brown, set the scene by giving an overview of the global economic and geopolitical drivers behind the recent fall in Oil prices. What followed was an examination of the downturn, focused on what factors set this Oil price crash apart from previous downturns and how the UK industry is able to respond.
It was agreed that a major difference is the re-emergence of the USA as a major Oil & Gas producer. Our guests examined the assumption that we are now in a long period of low oil prices, concluding that if that is so, business leaders will have to adjust their business models quite radically. At $40 USD oil (Brent), the UK’s Oil & Gas Operators could face a significant competitive shock – too expensive to decommission assets and too expensive to operate them. Operators may be forced to ‘hot stack’ their rigs and offshore facilities. At $60, the UK Oil and Gas Industry would not fare well either. The fight for capital investment in the UK is compounded by relatively unstable fiscal environment and an operating environment that is more expensive and less productive than many other Oil and Gas provinces. All agreed that what is needed as a first step to making the UK industry more competitive is substantial reform to the fiscal regime, focused on incentives for exploration and realistic levels of production taxation. Overall, our guests agreed that the industry has a lot to learn from other sectors, however the solution cannot just be about adopting new technologies, rather, adopting new ways of working and collaborating are also crucial.
The timing of the lunch and the discussion were all the more interesting following the UK Chancellors Budget presented a few days after the lunch, a budget which substantially altered the fiscal regime for the Oil and Gas production industry.