The Oil and Gas Sector Navigates COVID-19
09 July 2020
The current economic environment triggered by the global Coronavirus (“COVID-19”) pandemic has affected markets worldwide.
Many industries have been heavily impacted and recovery, when it starts in earnest, is going to be challenging and slow. Taking a lens on the Oil and Gas sector, the recent fall in oil in price is not an infrequent event, the industry is accustomed to peaks and troughs which have essentially been the “norm” since the 1980’s (Reuters, 2020). However, as time goes on it seems that the troughs are dipping ever lower and longer, while the peaks become significantly shorter lived. Oil prices were already falling well before COVID-19, so even for an industry familiar with managing uncertainty, COVID-19 brought a different dynamic and a new challenge to the forefront where ‘over supply’ of oil was no longer the main pressure on price, but considerably lower demand began playing an equally significant role. As countries worldwide went into ‘lockdown’ and communities started saying at home, the issue was compounded as storage capacity diminished.
Many Governments have introduced responsive measures in the wake of COVID-19, such as employment retention schemes and Government backed loans to support impacted businesses and their employees. Although often generous, these measures can only be short-term and ultimately companies in the Oil and Gas sector, like many others, will have to make difficult decisions while maintaining the health and safety of its employees. Oil and Gas UK (OGUK) predicted that as many as 30,000 people could lose their jobs in The North Sea Oil and Gas sector and have encouraged the Government to follow their proposals to reduce the long term impact; these measures focus on safeguarding the future of the industry and job retention.
With the backdrop of a Net-Zero future and an increasing focus on ESG, the Oil and Gas industry will have to adapt and consider all solutions available to them which may well be the much needed catalyst to ignite transformational change in the sector. Capital projects will inevitably be put on hold in the short term and areas that take more effort to extract from may be mothballed until the technology is available to make them profitable. The speedy deployment of large swathes of the workforce to working from home is likely to have a knock-on impact on considerations around the need for costly real estate and what now seem like unnecessary overheads with 75% of CFO’s suggesting they plan to move up to 5% of their workforce to a permeant remote working status (Gartner, 2020).
Looking ahead to future recovery in 2021 and beyond, assuming COVID-19 is controlled, the expectation is that the global economy will recover with China and India in particular expected to rebound with a significant increase in demand. Agreed cuts in production by the OPEC/non OPEC countries last month will help, however an oversupply and built up stocks will take time to unwind (Reuters, 2020). Time will tell what the next phase looks like for the sector and few would be willing to predict oil prices, timescales or recovery given the unique set of circumstances of this particular downturn. Yet, investors will continue to track the fortunes of the industry which has proved lucrative for the last 40 years and evolution will be the key to a successful emergence from this crisis.
Apex subsidiary, Throgmorton, has been delivering services to Oil and Gas clients for nearly 14 years through numerous peaks and troughs. Flexible solutions have been the key to supporting a fluctuating sector and our expert teams are poised to support their clients through to recovery.
