Economic Report 2016 - Oil & Gas UK

1

The strengthening of the dollar may offer some short-term respite to UKCS producers.

2

The strengthening of the dollar between 2014 and 2016 will have consequences for the profit and loss account, cash-flow and balance sheet of UKCS producers. These will be broadly positive for margins and for competitiveness but the impact on individual companies will depend on the extent of corporate exchange-rate hedging, among other factors. Those with significant sterling operating costs will have seen an increase in unhedged operating margins and some partial relief from the effect of falling dollar oil prices.

3

Figure 3: Monthly $/£ Exchange Rate

4

2.10

2.00

5

1.90

1.80

6

1.70

1.60

1.50

7

1.40

1.30 US Dollar to UK Sterling Exchange Rate

8

1.2 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Bank of England

9

After the UK’s vote to leave the EU on 23 June, sterling fell sharply to below 1.30 against the dollar, the lowest since 1985, and now stands at 1.32. This fall may offer further short-term respite to (unhedged) producers on the UKCS but should not diminish industry efforts to fundamentally reform the cost base of its operations in order to restore competitiveness and to attract new investment.

10

11

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