Business Outlook 2019

BUSINESS OUTLOOK 2019

Figure 19: Production Revenue, Post-Tax Expenditure and Cash Flow

Gross Revenue

70

Post-Tax Expenditure

60

Post-Tax Cash-Flow

50

40

30

20

10

0

Cash-Flow (£ Billion - 2018 Money)

-10

-20

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Source: Oil & Gas UK, OGA

Companies need to use the cash generated from their portfolios to satisfy various requirements. Funds are used to reinvest in UK and global portfolios, return value to shareholders via dividends and share buy-back schemes and reduce debt levels. Analysis of UKCS E&P companies shows that average gearing ratios (net debt compared to equity) are reducing, however there is a significant spread and debt leverage levels remain above those prior to the downturn. Gearing ratios of UK-focused operators are generally higher than their global counterparts, in part due to company size and strategy, but also as these companies have used the debt market to fund growth projects through mergers and acquisitions.

Figure 20: UKCS E&P Company Gearing Ratios

100

Weighted Average Gearing Ratio Upper Range Lower Range

90

80

70

60

50

40

30

20

E&P Company Gearing Ratios (%)

10

0

Q4 2013

Q1 2014

Q2 2014

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Source: WoodMackenzie, Rystad Energy

36