The chief executive of Oil & Gas UK, Diedre Michie, has warned that the combination of COVID-19 and the latest oil price collapse, “coming so soon after one of the worst downturns in our history”, has left the UK oil industry “in a paper-thin position”.
The fall in the oil price has required oil and gas companies operating in the North Sea to announce significant reductions in their exploration and production expenditure. These actions are necessary to maintain cash flows in the short term and ensure the viability of the business in the long term. However, they will also have a negative effect on oil companies’ supply chains, which have barely recovered from the previous downturn.
We are already seeing a decreasing rate of utilisation in the offshore supply vessel (OSV) market, with many owners approaching their creditors for yet another round of restructurings. While the OSV market is often “first in line” to take the brunt of any downturn in the offshore sector, there is no question that drilling contractors are also looking anxiously at their backlog with many already anticipating a requirement to review their financing arrangements. New technological advances and industry practices are also accelerating the obsolescence of various types of floating units – from drilling rigs and ships to floating accommodation units.