Impact of BREXIT on UK Oil and Natural Gas Companies

The study evaluates the impact of BREXIT on the United Kingdom oil and natural gas companies. It analyzes the current scenario and identifies the possible impacts on the companies. The findings show that oil and natural gas companies will have to pay higher taxes to import and export products and resources. There has been an imbalance in the industry in meeting the demand and the supply. The study recommends suitable strategies for long term sustainability in the market.

Running head: RESEARCH METHODS
Research methods
Name of the students
Name of the university
Author notes

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Executive Summary
The study had identified the impact of BREXIT on the United Kingdom oil and natural gas
companies. Globalization had changed the market scenario especially for companies in the
United Kingdom. The free trade has enabled the companies from the developing countries to
grab a hold to the market. This has intensified the competition in the global and domestic market
in the United Kingdom. The findings of the study showed that oil and natural gas companies will
had to pay higher amount of taxes to import and export products and resources. There had been
an imbalance in the industry in meeting the demand and the supply. Even though BREXIT would
have negative impacts on the industry, there will be some changes which would have to
capitalized.

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Table of Contents
Introduction......................................................................................................................................3
Rationale..........................................................................................................................................3
Research question............................................................................................................................4
Literature Review............................................................................................................................5
Research Methodology....................................................................................................................8
Findings and Discussion................................................................................................................10
Conclusion and recommendation..................................................................................................12

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Topic: An evaluation of the effect of BREXIT on the U.K refining industry
Introduction
The study will identify the impact of BREXIT on the United Kingdom oil and natural gas
companies. Globalization has changed the market scenario especially for companies in the
United Kingdom. The free trade has enabled the companies from the developing countries to
grab a hold to the market. This has intensified the competition in the global and domestic market
in the United Kingdom. This has caused United Kingdom to leave the European Union and if the
country leaves the European Union it will deeply affect the refinery industry in the United
Kingdom (Issa 2016).
Rationale
BREXIT would lead to the increase in exporting cost for the companies in the United
Kingdom refinery industry. The oil companies will have to pay half a billion pounds more for
trading with the countries in the European Union. The World Trade Organization rules suggest
that the trading cost of oil worth £73bn for the refinery companies will rise from £600m to
£1.1bn (Vaughan 2017). However, this impact can be reduced by striking deals with companies
outside the European Union. This is because of the fact the refineries will have to pay 3% tariff
on exported petroleum products. This has led to selling of assets on the North Sea to independent
smaller players in the market. Therefore, this shows that the future of the Oil and natural gas
companies in the United Kingdom is uncertain and the study will analyze the current situation to
identify the possible impacts on the companies. On the other hand, the energy requirements in
the world will increase significantly in the next few years where United Kingdom being one of
the major players in the market (Nortonrosefulbright.com 2016). However, many experts feel

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that BREXIT would not have a materialistic effect on oil and natural gas regulations as the
government of the companies have marinated their control on the energy policies. Moreover, the
government will have their control on licensing, taxation, development, appraisal and
production. Therefore, this topic requires more exploration which will able to provide a better
insight on the market possibilities.
Research question
 What is the impact of BREXIT on the United Kingdom refining industry?
 What is the current scenario in the United Kingdom oil and natural gas industry?
 What are the future possibilities of the refinery companies?
Objectives
 To identify the impact of BREXIT on the United Kingdom refining industry
 To evaluate the current scenario in the oil and natural gas industry to develop possible
future impacts
 To recommend suitable strategies for long term sustainability in the market.

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Literature Review
As stated in a report by Deloitte.com (2015), the energy demands in the country will
increase significantly all the world and in the United Kingdom in the next decade. This has
showed that the oil and refinery industry in the United Kingdom will require investment worth of
the $3 trillion by the end of 2030 for extraction, production, shipping and refining of the products
(Ukpia.com 2011). This is due to the fact there will be 15% increase in the demand for energy
resources form the country. United Kingdom supplies fuel for cars and power generation which
has diminished from 40 million tons to 3 million tonnes in the last few decades (BEIS 2017).
This has resulted in the closure of large number of refineries and most of the fuel was used to
convert into other products using catalytic crackers. Therefore, majority of the output of the
machineries in different refineries are petrol. However, the scenario has changed significant
since the fiscal year of 1990 where the government policies have increased the demand of the
diesel due to its higher density and higher economy of fuel. Moreover, the North Sea production
which has been acting as the support for the changing market needs for the refineries in the
United Kingdom but the production in the North Sea have declined significantly and the
extraction of oil have become much more expensive for the companies. Therefore, some of the
companies have selling their shares in the North Sea to independent small companies.

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Drifting Out of market demand
The current market analysis shows that the United Kingdom produces surplus of fuel oil
and petrol and very little of jet fuel (Vandervell 2015). The production of domestic diesel is
mitigating the current demand in the market but there will be shortage of fuel due to rise in
demand of both the off road and on road applications. Moreover, there is intense competition in
the United Kingdom market which has increased significantly as it operates as a global business
and the refineries from different countries can readily access the market in United Kingdom. The
increase in use of the renewable sources of energy will decrease the demand for crude oil
products in the near future. Moreover, the production specifications in the upcoming years will
become stringent and in order to mitigate this problem the refineries will have to invest in
developing new hyrdofining units to reduce the content of sulphur in the generated oil products

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or use of crude oil with low content sulphur which is much more expensive (Vandervell and
Watson 2018).
Stringency of environmental standards
The environmental standards in The United Kingdom are stringent than in the other
countries but with increase in levels of pollution will make the environment standards even more
rigid. This is the reason that most of the refineries in the United Kingdom use highly quality
crude oil have less content of sulphur. This has placed the refineries at a disadvantage when
compared to the other refineries all over the world taking market attractiveness and operating
profit into consideration. United Kingdom had addition regulations related to environment
protection in addition to the laws of the European Union which has reduced the market
attractiveness significantly (Legislation.gov.uk 2018).
Refining margins
The refining margins of the companies have been poor in terms of the investments made
in the industry. In the past decade the return on capital in the United Kingdom refining is 4.8%
which is quite low (Ec.europa.eu 2018). Therefore, the market attractiveness of the companies
has been reduced significantly in the past decade. Therefore, new investments have not being
made by the companies in developing new plants and the imbalance in the demand supply chain
can be reduced by investing more on production of jet fuel than on diesel.

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Research Methodology
Research methodology is chosen based on the nature of the study, general classification,
research purpose and research design (Flick 2015). This is an exploratory study which will
explore data from different articles to develop relevant. This study will apply fundamental
approach where the research findings will be general and not specific to the industry.
In this current study, interpretivism is the selected research philosophy as this is a
descriptive study. In this philosophy, the study will consist of human element and reality is
accessed by using social construction. Various approaches such as constructivism, hermeneutics
and phenomenology are combined together to develop research content. In interpretivism,
subjectivism is the accepted view and secondary data is collected and analyzed to develop
relevant findings (Potrac, Jones and Nelson 2014). In this currents study, inductive approach is
the suited approach which will result in development of new theories and frameworks.
There are two research designs used in the conducting business and academic research.
They are explorative and conclusive research (Wildemuth 2016). In this current study,
explorative research is the basis of analysis where the study will explore data to develop tentative
hypothesis which has been used to develop the research data. However, in most cases the
explorative study provides multiple alternative options for mitigating a specific problem in the
study.
This study will include secondary analysis of data where peer reviewed journals, articles
and web articles have been used to develop relevant data. In this study, thematic analysis is the
method used for analyzing the data where different themes have been developed to analyze the
gathered data. Sampling is a method of selecting sample size from the overall sample in the

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study. There are two types of sampling methods, on is probabilistic sampling and other is the
non-probabilistic sampling method. The different methods in probabilistic sampling are stratified
sampling, systematic sampling, simple random sampling and cluster sampling. Non-
probabilistic sampling will consist of methods such as snowball sampling, extensive sampling,
convenience sampling, quota sampling, and judgement sampling (Palinkas et al. 2015) In this
current study, non-probabilistic sampling will be used where the convenience sampling will be
sued to select the sample size from 20 articles. The study will review 5 peer reviewed journals to
develop the literature for the study.
Reliability is the ability of the study to reproduce the same results using a different
sample size. It may seem that relevance of data is less in secondary research but it is highly
significant to check the reliability of the market data. Therefore, the time, method, type and
consistency of the data will have to be identified. In this study, the data used are reliable to case
study. Validity is act of following all the method suggested in the research to perfection and in
this study, the suggested research methods have been followed to the fullest which has resulted
in the development of the expected outcome (Csikszentmihalyi and Larson 2014).
Research ethics is one of the major factors in defining the success and the failure
of the research. In this study, the data has been collected from authentic high-quality peer
reviewed journals, articles and web articles. Moreover, the study has not biased methods for
developing relevant results in the study.

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Findings and Discussion
The market study shows that there will be economic slowdown which will hamper the
business of most of the companies. The impact of BREXIT will not be limited to United
Kingdom and the surrounding EU nations will also be affected significantly by it. The growth
forecast shows that there will be reduction in growth by 0.5%. There has been significant
reduction in the value of the currency in the United Kingdom which is an indicator of the fact
that the UK will have to face adverse effects for leaving the EU. Moreover, the decline of GDP
in the United Kingdom could be almost 6% and this has led to downgrading of the economy
from AAA to AA.
The graph shows that there has been significant reduction in the prices of oil after the
decision for BREXIT took place. However, the prices of oil will rise in the upcoming five to six

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years. The imbalances in the currency are expected to go down slowly and there will not be
potential upheavals in production among the major global players. The oil companies have
already started using aggressive hedging strategies for locking the future prices of sales. The
further prices are based on the increase in the expected growth of the companies in the upcoming
years. Moreover, the organizations have significantly reduced the net long positioning of the
companies. This is because of the fact that the expected growth in the sector is flat and the
companies will have to balance out the demand and supply.
The promotion of the domestic shale industry is the only suitable option that the
government can focus on in order to sustain the economy. The breaking of traditional ties in that
of the European Union and declining in the production of the oil and natural gas industry have
caused a serious setback for the oil and natural gas companies in the United Kingdom. The
development of the shale industry will depend on key factors such as local community buy-in
and economic viability.
On the other hand, the fall in the value of the currency due to BREXIT will have a
positive impact on the economy as it will increase in market attractiveness. The investors will be
willing to make more investment in the United Kingdom due to the reduction in prices of the
assets and value of the companies. However, the prospects in the North Sea have decreased
significantly as extraction of crude oil has become more expensive and oil reserves have been
depleting (Issa 2016).
The current scenario states that United Kingdom fulfills their 43% of the energy demands
from the North Sea, LNG exports of 13% and the remaining demand is met by the imports by
using the gas connectors between United Kingdom and Europe. The LNG export terminals have

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not been utilized properly and proper utilization of these terminals can fulfill atleast 50% of the
energy demands in the United Kingdom (BEIS 2017).
Conclusion and recommendation
The findings of the study have been linked with the research objectives to develop a
meaningful conclusion.
Objective 1: To identify the impact of BREXIT on the United Kingdom refining industry
The impact of BREXIT on the refineries in the United Kingdom will be mixed and there
are positives and negatives attached to it. There will be reduction in the market attractiveness and
demand of the refinery products after the traditional breakup. The refining margins will decrease
significantly and the companies will be forced to reduce their operational cost which may lead to
attrition in the industry where the organizations will have to let go of some of their employees.
Moreover, as the North Sea oil resources and extracting crude oil is difficult and expensive major
organizations will have to let go of their sites so that they can survive this tough period.
Moreover, the oil and natural gas companies will pay heavy taxes to export and products to and
for form the country which will cost almost a half a billion pounds each year.
Objective 2: To evaluate the current scenario in the oil and natural gas industry to develop
possible future impacts
The current scenario is very dicey as there is an imbalance in the demand and supply of
the oil products in the industry. The demands of jet fuel are higher in the industry when
compared to its production and there is surplus in diesel where the demand of diesel have
decreased significantly.

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Objective 3: To recommend suitable strategies for long term sustainability in the market.
It is recommended that in order to maintain their sustainability, the organizations will
have to increase their production of their jet fuels. Moreover, due to BREXIT there has been
change in migration pattern which can be utilized to get cheap labors. Moreover, they will have
to invest in extraction of high quality crude oil and development of a highly efficient operation
system to reduce their production in order to compensate the increase in taxes due to export and
import of products.

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