19/3/2020 (74) North Sea warns oil and virus crises threaten survival | Financial Times

Oil & Gas industry

North Sea warns oil and virus crises threaten survival
Trade body says sector faces sweeping cuts and is in ‘paper-thin position’

Oil and gas explorers and producers are expected to slash their capital investment budgets by up to 30 per cent this year © Bloomberg

Nathalie Thomas in Edinburgh 6 HOURS AGO

Oil and gas companies in the UK North Sea are facing an “unprecedented” crisis that
threatens some with collapse and will mean sweeping spending cuts this year,
according to a bleak report released on Thursday.

OGUK, a trade body for the North Sea operators, said the combination of the oil price
war triggered by Russia and Saudi Arabia and pressures on commodity prices from
the global spread of coronavirus were creating a situation “we have really never seen
before”.

Companies, especially those in the oil and gas supply chain still struggling to recover
from the last oil price crash of 2014, were once again facing “severe pressures”, OGUK
said in a report on the state of the market that also warned “this sector is now in a
paper-thin position”.

Oil and gas explorers and producers are expected to slash their capital investment
budgets by up to 30 per cent this year as they grapple with the crisis, which has led to
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19/3/2020 (74) North Sea warns oil and virus crises threaten survival | Financial Times
budgets by up to 30 pe ce t t s yea as t ey g app e w t t e c s s, w c as ed to
a plunge in oil prices. Brent crude continued its slide on Wednesday to a 17-year low
of $27.04 a barrel.

OGUK forecasts that revenues from production across the region could drop to £15bn
this year from £24.5bn in 2019 and more than £28bn in 2018 despite output levels
remaining relatively stable. It was “feasible” that cash flows could turn negative for
only the third time in 40 years, the group said.

Oil and gas-producing regions across the world are feeling the pain from the sharp
decline in prices in recent weeks but higher-cost regions, such as the UK North Sea,
are expected to suffer particularly acutely.

Analysts have warned that some of the independent oil and gas operators in the UK,
which are still carrying large debt burdens from the last crisis, could breach their
banking covenants this year.

OGUK has appealed to the British government for assistance, pointing out the
region’s role in providing “secure” energy.

“We need government support, along with other industries, now to protect
businesses, jobs and capabilities and ensure our industry’s future prosperity,” said
Ross Dornan, market intelligence manager at OGUK.

Mr Dornan welcomed a package of measures announced on Tuesday by chancellor

Rishi Sunak, which included £330bn of government guarantees so that companies
could secure bridging loans to get them through the coronavirus crisis.

But he said oil and gas companies needed to know how they could access additional
finance and how quickly it would become available. Longer term, the oil and gas
industry would be looking for support via a “sector deal” of the kind that had been
struck with other parts of the economy such as renewable energy, Mr Dornan added.

Mr Dornan said he had already heard of situations where “job numbers are being
reduced” in the North Sea but warned it was too early to forecast what the full impact
of the crisis would be on employment in areas such as Aberdeen.

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19/3/2020 (74) North Sea warns oil and virus crises threaten survival | Financial Times

Neivan Boroujerdi, a North Sea analyst at Wood Mackenzie, said that while the region
had weathered many storms in the past, it was now in “uncharted waters”.

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