Regulations as operations. Those cost in case of “harsh

Regulations and
technical standards: As the great repeal bill objective is to transpose all EU
law applying to UK into UK law directly, there may

Customs
processes: no longer being a member of EU state may likely lead to exclusion
from the custom union, hence UK goods will be always checked at EU borders.
This situation may lead to some projects delays and at some extreme to unplanned
operation shutdown due to bureaucracy and hence encouraging companies to look
outside of the EU for their supply chain sourcing.

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Mobility
labor: Among the 300,000 jobs supported either directly or indirectly by this
industry, at least 10% of the workforce come from areas out of the UK and half
of them from EU. Most of them are highly skill workers holding special technical
or managerial positions. Barriers that prevent free movement of people will
certainly increase employment costs and potentially undermine key projects as
well as operations.

Those
cost in case of “harsh BREXIT” may not be helpful especially with the downturn
the industry is currently facing. Moreover, there are non-tariff barriers to
trade issues which may arise post BREXIT:

Below
is a picture displaying the effects of those potentials scenarios.

·       World Trade organization scenario: No new trade deals
and focus on WTO rules. This option will increase direct costs of trade by £1.1
Billion per year.

·       Fresh opportunity scenario: UK obtain minimal tariffs
with EU, improved tariffs and favorable trade agreement with non-Eu countries.
This outcome brings direct trade costs down by £500 Million per year.

Now
we can analyze the two possible extreme scenarios which may happen:

For
a clear picture of the impact of the BREXIT within this industry let us first have
a look at the trade breakdown (direct costs) in the UK oil and gas industry in
2016 on the diagram chart below.

Even
though the far future of BREXIT is no yet so clear as what investors and
business would have expected, the Oil & Gas UK has issue an analysis of the
different possible outcomes in link with the value of goods and services traded
between UK and the rest of the world. Being aware that the primary objective of
tariff applied to protect domestic industry cannot work on trading of natural resources
such as oil and gas, for which there is no possibility to create domestic
market when the resource is not abundant, hence zero or very low tariffs should
be applied.

Long term impact:

Most
of the players within the Oil and Gas sector in UK took advantages from margins
due to currency depreciation. Local business with their activities associated
costs in British pound and selling their production in dollar-denominated
markets saw for instance their revenue and profit increased by 10% at least and
sterling denominated costs remaining the same. Furthermore, one year after the
Brexit referendum, UK Stock Indices shown very good performances due to
UK-listed companies having their income in foreign currency. It was also an
indication of investors believing in short-term benefits from higher
competitive exports able to outweigh the longer-term uncertainty to create a
bull market. This situation should be followed by UK government final positions
on policies as well as potential positive consequences.

After
the volatility created on UK financial markets before the referendum’s
surprised results, uncertainties rose on how the BREXIT will be implemented and
managed for UK businesses. There was a need for investors to be reassured about
the fact there will be no negative impact or effect on their investments in the
country.  The next morning after BREXIT
referendum the British pound fell to its lowest value against the US dollar
since 1985, £1.33/$, therefore country exports became very competitive and
attractive for foreign investors.

Short Impact:

After
the UK referendum with resulting in UK leaving the European Union, the
Government stated and reassured their willingness for the country to end free
movement of people, their membership of free market and customs union and
furthermore returning sovereignty to the UK parliament. The government of UK is
looking for a free trade agreement between UK and the EU. Despite the fact that
all the details of a potential agreement for the withdrawal of UK from EU is
still unknown, the potential impacts of this event can be analyzed and divided
as short term and long term one.

Brexit and
the Oil and Gas sector in United Kingdom

 

Economically
last year despite the crisis, the oil and gas sector accounted for 76% of UK’s
primary energy (60 % from local production) and contributed for £ 17 Billion in
UK’s balance of trade. This sector continues to support a little bite more than
300,000 jobs in UK and was supporting more that 450,000 jobs before the crisis.
Currently the politic of the government is to ensure that this sector provide
two-thirds of total primary energy mix by 2035. To achieve this target, the government
need to take into consideration the energy trilemma made of: security of
supply, affordability and environmental sustainability. The forecast estimate
that the global oil & gas demand to increase by 25% in 2035. The fact that
UK is still reluctant to the usage of coal and nuclear energy, will make this
sector to be a major player one in the UK economic environment especially
within the energy sector. Adding to the current volatility of oil prices on
markets (due to the oversupply of this resources on markets), there is a
disruptive event called the BREXIT which add the level of uncertainties as well
further impacts within this business sector.

The
oil and gas business has always been one of the big contributors (directly and
indirectly through others business sectors) to the economy of UK since the
discovery of this resources and despite the number of crisis that have evolved
this sector as the ongoing one, which is currently at its upturn stage. Before
this period, from 2011 to 2014, the value of oil and gas in UK economy has been
constantly decreasing (£34 Billion to £24 Billion). However, the last three
years (2014 -2017) have been very difficult for the oil and gas sector. Since
its peak in 2014 at $114, the Brent oil price has been decreasing till its
bottom point of $27 at in January 2016 before starting recovering and its
current value is $63. The operational expenditures within this sector have been
decreasing from £9.8 Billion ill £7 Billion over the crisis period while it was
steadily increasing before 2014.  The
supply chain (services linked to the sector) revenue from this business sector
fell from £41.3 Billion in2014 to £28 Billion in 2016 and is expected to recover
by 15 to 20% this year and the next year. Companies to survive and ensure
competitiveness during the crisis have struggle to reduce their operating cost
from $29.7/boe to $15.3/boe by extending the life of current assets, cutting
jobs, reducing the number of facilities, reducing investment projects (drilling
and development) etc.

Oil and Gas Sector
in United Kingdom

 

The
GDP in UK over the five past years have mostly been made of Manufacturing
sector (stable around 20% of GDP) and Services sector (stable around 80% of
GDP). Within the service industry we have financial and non-financial services.
Non-financial services include mainly the construction, retails and Oil and
Gas.

The
overall forecast of the economy in this country is uncertain due to a
disruptive event which occurred last year: the BREXIT. This event is a result
of the referendum which took place in June 2016 and which resulting in majority
of UK population expecting the country to withdraw from the European Union. However,
with this event some economists were still able to come out with some forecasts
despite the high level of uncertainty: the country’s GDP is expected to
decrease by an average percentage of 2.5% each year till 2023.

The
Bank of England Act 1998 gives the Bank of England operational responsibility
for setting monetary policy to maintain price stability and subject to that, to
support the economic policy of Her Majesty’s Government, including its
objectives for growth and employment. For instance, during their Annual
Monetary Policy Committee meeting ending on 3 February 2016, The Bank of
England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2%
inflation target and in a way, that helps to sustain growth and employment. For
fiscal policy, the objective of UK is to maintain credible public finances and
running a surplus in 2019-20, cut taxes for business and enterprise, invest in
infrastructure and devolving power, improve education and healthcare and
support savings as well as cutting taxes for working people.

The
country GDP has been steadily growing since 2010 till now at an average growth
rate of 1.9% while the inflation rate has been decreasing from 2.83% in 2012
till 0.04% in 2015 and began a slight growing trend by jumping to 0.66 in 2016.
The tax receipts as well have been growing within the last five years from £453
Billion in 2010/2011 till £589 Billion in 2016/2017. The total government
expenditure has been almost stable (slightly growing) within the last five
years while its share of the country GDP steadily decreased from 40.1% in
2010/2011 till 35.4% in 2016/2017. The Unemployment rate has been decreasing since
2012 from 8.1% till 4.9% in 2016. The exports of goods and services in UK have
been steadily decreasing from 540 Billion USD in 2013 till 409 Billion USD in
2016 while the imports have been almost stable between 695 Billion USD and 640
Billion USD over the same period. In 2016, a little bit more than 35% of UK
exports were destined to countries of Europeans union whereas almost the same
the same percentage of UK imports were coming from this region. All those
macroeconomic data are supported (are the results of) by strong monetary and
fiscal policies.

United
Kingdom of Great Britain and Northern Ireland usually called United Kingdom
(UK) is a western European country with a surface area of 243,600 square
kilometers and a population 65.64 Million of people. The country was classified
by the world bank as the world fifth largest economy in 2016 with a GDP of $2,618.89
Billion USD (£1,939.63 Billions – current market prices), annual GDP growth of
1.8% and an inflation rate of 0.66%. For that same year, the world bank
reported that export of good and services accounted for 28% of the GDP while
the import of good and services represented 30% of GDP.  Still in 2016, the tax revenue represented
25.4% of the country GDP whereas the public-sector expenditure (2016/2017) was
35.4% of the GDP (£691.4 Billions) for an unemployment rate of 4.9%.

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