Blog: Brexit – what next for oil & gas?



Alison Baker
Alison Baker

Alison Baker is UK Head of Oil & Gas at PwC

 

It will take some time for the impact of last week’s vote to become clear and this is especially true of the oil and gas sector.

The oil and gas industry is a global sector.

To that extent there are broader macro-economic factors that will influence and impact more greatly the North Sea than the referendum outcome. Moreover, we cannot overestimate the resilience of this sector and its ability to manage geopolitical risk.

That said, the referendum’s outcome does highlight potential areas of concern for the North Sea.

The uncertainty around what happens next and how long the exit process will take to complete is not helpful at a time when the industry is going through painful restructuring triggered by low oil prices and when companies are looking for stability at a political level to make their long term investments. The industry will be looking for reassurance around plans for exit to help them mitigate this.

The outcome should provide greater incentive for the industry to deliver cost efficiency through collaboration and standardisation. Making the North Sea a competitive basin to attract investment has been and will remain a priority focus for the industry. And that in itself could be a positive outcome.

From a broader geopolitical risk perspective, the UK’s decision could adversely impact the future of the EU. It may trigger other member states to question their future membership. Against this backdrop of uncertainty, it is not difficult to envisage the broader region’s economic recovery being further compromised which would have potentially global ramifications and a subsequent adverse oil demand impact.

And the impact of Brexit, but more importantly Scotland’s decision to overwhelmingly vote to remain, could have a profound impact on the future of the Union. With that will come the debate around ownership of oil & gas reserves and revenues – and this further uncertainty is not something that the industry needs at this time of volatility.

The key word in all of this is “uncertainty” – we have never had a situation like this and the overall effect this will have on the EU, the country itself and the sector remains to be seen. Added to this, the immediate hiatus in activity post the vote does not help allay those uncertain feelings.

From a more positive perspective, there is an argument that suggests over the medium term as the UK takes greater control and sovereignty over regulation, this will reduce compliance duplication and conflict with EU regulation. The net result being less complexity and reduced cost in compliance. However, we should bear in mind that much of the EU regulation around the oil & gas sector is actually based on UK rules and so it remains to be seen what difference this makes for the industry’s overall regulatory framework.

What is vital, is that whatever framework we arrive at, it is specifically tailored to support an industry in transformation.

Some further thoughts on the potential impact of Brexit on the oil & gas sector are contained in this document from PwC: EU Referendum - Implications for Oil & Gas.