March 19, 2020 / 12:26 PM / 9 days ago

Britain's oil industry calls on public purse as first fields shut

LONDON (Reuters) - Britain’s oil and gas sector called on the government on Thursday to help it survive, as an oil price crash triggered the first field shutdowns in the North Sea, home of the Brent crude stream that underpins global oil prices.

As Saudi Arabia and other low cost producers including Russia are flooding the market with oil, higher cost energy producers worldwide, like those in the North Sea, are under pressure with prices falling below breakeven points.

EnQuest (ENQ.L) became the first British producer to shut North Sea fields in the wake of the oil price LCOc1 slump to 17-year lows, saying it will not restart its Heather and Thistle/Deveron fields.

Oil and gas producers worldwide have cut spending and dividends and some warned this would lead to shrinking future output as benchmark oil futures have slid towards what could be their worst quarterly fall since the 1980s.

Britain has said it would launch a 330 billion pound lifeline of loan guarantees and provide a further 20 billion pounds in tax cuts, grants and other help for businesses facing the risk of collapse.

But industry body Oil and Gas UK’s (OGUK) Market Intelligence Manager Ross Dornan said it was not clear how its members could access the government help and it might not be enough.

“We are likely to see more insolvencies and consolidations in the market,” Dornan said.

In the longer term, he said the industry was looking for further support from the government in terms of a sector deal.

At prices of $40 a barrel and 25 pence per therm for natural gas, OGUK said it expects its oil and gas producers to “effectively be cash flow neutral”. At $35 a barrel, the basin would fall into a negative cash flow of about 1.2 billion pounds.

Dornan added that it was too early to say how much money the industry would need or whether the shift to lower-carbon energy might be an added complication.

SUPPLY SURPLUS

Oil and gas companies have already been struggling to attract investors because of the shift away from fossil fuel, including the British government’s aim for net zero carbon emissions by 2050.

Greenpeace UK chief John Sauven said there was no question oil workers deserved government support.

“(But) we must avoid the mistakes made in the financial crisis. Any bailout has to be tied to keeping people in employment,” he said.

“The government must (...) avoid the cost of the health crisis exacerbating the climate crisis. The best remedy to both is pumping money now into the low-carbon transition to offer oil workers a clean-energy future.”

The British North Sea produced about 1.7 million barrels of oil equivalent per day last year, equal to about half of Britain’s gas and three quarters of its oil product needs.

Dornan said that lower activity and investment might ultimately lead to lower output from the North Sea basin, but not immediately.

“I think there is enough hooked-up, sanctioned resource right now to maintain production levels at around the current rates in the next year, 12 to 24 months,” he said.

In the current oil supply surplus, millions of barrels worldwide are being pumped into storage, but once storage capacity is exhausted, producers will have no choice but to cut production.

Maintenance work, including at the Forties Pipeline System central to crude streams underpinning the Brent benchmark, could be subject to change.

“It’s a work in progress, any activities are going to be under review,” he said.

Reporting by Shadia Nasralla; Editing by David Goodman and Elaine Hardcastle

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