Business Outlook 2020 - Autumn Snapshot

BUSINESS OUTLOOK 2020: Autumn Snapshot

Recovering Investment and Activity Levels

In Business Outlook: Activity & Supply Chain , 4 OGUK outlined how the changes in company business plans had resulted in over half of E&P companies having to defer the majority of their planned activities for this year. This, along with other measures to reduce costs and increase efficiencies has led to an anticipated decline in capital expenditure of 30–40 per cent this year, a 10–20 per cent reduction in operational expenditure and a 25–30 per cent fall in expected decommissioning spend. This is likely to result in a year-on-year fall in total industry expenditure of £3–4 billion compared with initial expectations for this year. However, it is important to recognise that the industry will still spend upwards of £10–11 billion in 2020 and it remains amongst the UK’s largest industrial investors. At the time of writing, companies are going through business planning and budgeting processes for 2021 and due to the continued fluidity in the market it is still too early to make a robust and clear estimate of 2021 investment levels. However, given the ongoing challenges, it is likely that investors will continue to take a conservative approach. The level of activity and expenditure in the next 12 to 18 months will be dependent on a number of factors including the ability to continue to safely increase offshore personnel levels, prevailing market conditions, company cash constraints and the ongoing competitiveness of the UKCS for investment. Looking to 2021, companies will continue to be challenged to explore ways to implement further efficiencies.

Increasing activity and investment levels from those seen this year will be important froma reserves progression perspective and are also vital in providing new opportunities for the supply chain. Companies across the supply chain continue to see revenue and margin reductions, and many are operating at unsustainably low levels. However, it will take time for the activities lost this year to be recovered and it is not simply a case of moving everything into 2021. OGUK anticipates that it could take two to three years to rephase and recover the activity lost from 2020. This will be dependent on factors including the nature of the work programmes, demands from other activities within company portfolios, the ability of the supply chain to service demand and how market conditions continue to develop. Innovative and collaborative working across operators and supply chain companies can unlock new opportunities and the regulator also has an important role to work constructively with the industry to keep activity on the table.

4 www.oilandgasuk.co.uk/product/business-outlook-report/

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