Oil Price Fluctuations and UK Impact

This assignment delves into the complex relationship between global oil prices and the UK economy. It examines the historical trends in crude oil prices, using data from reputable sources like Macrotrends and Statista. The analysis explores the factors influencing these fluctuations, including OPEC decisions and shale gas production, drawing insights from academic journals and reports. Furthermore, it incorporates qualitative research perspectives to understand the experiences and challenges faced by stakeholders within the UK oil and gas industry.

Running head: DISSERTATION
The Impact of the Decrease in Global Crude Oil Prices on The UK based Exploration &
Production Companies
Name of the Student:
Name of the University:
Author note:

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Acknowledgement
I would like to express my gratitude towards all the people, who have helped me in conducting
my research study. They have helped me in every possible manner to explore my potential and
strength and utilize it in the best manner for conducting the research paper. I also thank my
supervisor, who has guided me through the entire time of the research by providing excellent
guidance and monitoring. I also express my gratitude towards my friends and family who have
supported and encouraged me throughout the research work so that I could complete the study in
proper time.

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Executive summary
The purpose of this research paper is to find out the impact of the fall in the global price of the
crude oil on the exploration and production companies of the North Sea region of the UK. For
this study, the researcher has collected secondary data on the oil price fall, level of employment,
impact of lower Brent price, and the future scope of the oil and gas industry of UK. As the
production cost of the oil companies of UK is highest among all the other oil producing countries
in the world, the fall in oil prices has a very hard impact on this industry. The level of
employment has fallen sharply after the price has started to fall in 2014. Through various
literature reviews, the causes of the fall in oil prices have been explored. The impact of the price
fall is also explored through various sources. It is found that, the employment of the sector was
hit hard the most along with the profitability of the industry.

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Table of Contents
Chapter 1: Introduction....................................................................................................................6
1.1 Introduction............................................................................................................................6
1.2 Background of the study........................................................................................................7
1.3 Research aim..........................................................................................................................8
1.4 Research objectives...............................................................................................................8
1.5 Research questions.................................................................................................................8
1.6 Problem statement.................................................................................................................9
1.7 Rationale of the research.......................................................................................................9
1.8 Structure of the research......................................................................................................10
Chapter 2: Literature Review.........................................................................................................11
2.1 Introduction..........................................................................................................................11
2.2 Background..........................................................................................................................11
2.2.1 Oil and gas industry of UK...........................................................................................11
2.2.2 Causes for fall in the global crude oil price..................................................................13
2.2.3 Fall in global crude oil prices: Winners and losers.......................................................15
2.2.4 Impact of falling oil price on the E&P companies of UK and North Sea Region........17
2.3 Conceptual framework.........................................................................................................18
Chapter 3: Research Methodology................................................................................................19
3.1 Introduction..........................................................................................................................19

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3.2 Research Philosophy............................................................................................................19
3.3 Research approach...............................................................................................................20
3.4 Research Design..................................................................................................................20
3.5 Research purpose.................................................................................................................20
3.6 Research strategy.................................................................................................................21
3.7 Data collection.....................................................................................................................21
3.8 Data analysis........................................................................................................................22
3.9 Limitations...........................................................................................................................22
Chapter 4: Data analysis & research findings...............................................................................23
4.1 Introduction..........................................................................................................................23
4.2 Findings...............................................................................................................................23
4.2.1 Fall in the global crude oil price...................................................................................23
4.2.2 Impact of lower Brent...................................................................................................27
4.2.3 Impact on employment.................................................................................................30
4.2.4 Impact on capital investment, spending and profit level..............................................32
4.2.5 Future prospects............................................................................................................38
Chapter 5: Conclusion and Recommendations..............................................................................43
5.1 Introduction..........................................................................................................................43
5.2 Linking to the objectives.....................................................................................................43
5.2.1 Linking to the first objective.........................................................................................43

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5.2 Linking to the second objective.......................................................................................44
5.3 Linking to the third objective..........................................................................................45
5.3 Recommendation.................................................................................................................46
5.4 Future scope of the study.....................................................................................................47
Bibliography..................................................................................................................................48
Front In-text Bibliography.............................................................................................................53

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Chapter 1: Introduction
1.1 Introduction
The purpose of this research paper is to find out the impact of the fall in global crude oil
price on the UK based oil and gas exploration and production companies. The significant fall in
the global crude oil prices had an important impact on the overall world economy. UK economy
was no exception. Fall in the oil prices increases the activities for the entire economy as the cost
of production falls for all the businesses, particularly for those businesses, which are heavily
dependent on the oil inputs. This led to improvement in the investment, as well as employment
(Yusuf, et al., 2013). It has also been found that, the oil and gas industry was adversely affected
by the decline in the oil prices. The profit of the oil and gas exploration and production
companies would fall as the oil prices fall. However, agriculture, coke and refined petroleum
manufacturing, air transport, and oil intensive manufacturing sectors were benefitted
significantly, due to the reallocation of the capital and other resources. Thus, reduction in global
oil prices led to improvement in the overall economic condition of the world as well as UK
economy (Javaherdashti, et al., 2016). This research paper examines the effect of the reduction in
global crude oil prices on the oil and gas exploration companies of UK. It is expected to get a
negative impact on the industry, but to find out the extent of the impact is the objective of the
research paper. For this purpose, the researcher would take a case study company and conduct a
survey to know how much the fall in oil prices affected the company business. The background
of the research focuses on the context of the study.

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1.2 Background of the study
The oil and gas industry of UK is one of the major industries and it caters mainly to the
needs of the domestic market. In 2014, the industry produced 1.42 billion boepd, out of which,
59% was oil. The nation consumed 1.508 million of bpd of oil and 2.735tcf of natural gas in
2013 (Raufflet, et al., 2014). Thus, it can be said that, the domestic demand is more than the
production and it has led to importing of oil and gas in UK. 98% of the production is obtained
from the offshore fields in UK. There is only one major onshore oil field, Wytch Farm in Dorset.
Along with that, there are almost 113 oil wells and 189 gas exploration sites across the country
(Kelland, 2014). UK imposes high cost on oil and gas production due to very difficult offshore
conditions. In 2014, the cost of exploration was £1.1 billion, operating cost was £ 9.6 billion and
capital investment was £14.8 billion for the oil and gas industry. The industry is also a big
employer of the nation, providing employment of more than 100,000 people (Arezki &
Blanchard, 2014). Hence, when the price of global crude oil fell significantly in 2014, the UK oil
and gas industry faced losses. The oil prices were fairly stable for almost four years from 2010 to
mid 2014. After that, it fell to almost half very rapidly (Reboredo, et al., 2016). Insipid growth of
the economy across the developed world led to weak demand for oil and gas, and increase in the
oil production in the USA have contributed in the fall in crude oil prices. Russia, being one of the
largest producers of oil, was affected mostly by the falling oil prices (Baffes, et al., 2015). UK
was also affected by the oil price fall. Some of the sectors were benefitted due to oil price fall,
but the oil and gas industry and its subsidiaries faced challenges. Hence, the overall impact was a
net effect of the profits of some industries and losses by some. This provides the context of this
research,

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1.3 Research aim
Since, the topic of the research is to find out the impact of the decline of the fall in the
global crude oil prices on the oil and gas exploration and production companies of UK, the main
aim of this research study is to find out the extent of the impact. By how much the major UK
companies are hit by the decrease in the global crude oil price and its impact on the economy is
to be found out by the researcher. The study aims to ascertain how the exploration and
production companies of UK have reacted to the sharp price change and how the change casted
its impact on the operation, future growth and development of the companies.
1.4 Research objectives
The objectives of this research paper are:
 To analyze and understand production cost in the UK oil and gas industry by creating a
comparison before global oil price fall and the present day.
 To analyze and understand how UK E&P companies have handled the change in crude
oil prices in terms of their current and future capital and human investment.
 To determine the future prospects of UK based E&P companies with low prices for crude
oil.
1.5 Research questions
1. What are changes in the production cost in the UK’s oil and gas industries before and
after the global oil price fall?
2. How the E&P companies of UK reacted to the change in the crude oil prices in
relation to their capital and human investment?

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3. What are the future prospects of the UK based E&P companies when the crude oil
prices are low?
1.6 Problem statement
The reaction of the UK based E&P companies to the decreasing global crude oil prices
and its impact on the operations and future growth and development of the oil and gas companies
are the problem statement of this research study. The researcher will be assessing how the E&P
companies UK handled the crisis generated by the falling oil prices and how it affected their
future prospects.
1.7 Rationale of the research
Crude oil is a very important part of the world economy. It is one of the major source of
global energy and is likely to remain so for many decades to come, although there is growth in
the alternative energy sources. The countries, whose economy is based on the oil and gas
resources, are the major controlling powers of the world (Bremmer & Kesselring, 2016). In
2014, the oil and gas resources provided about 38% of the energy needs of the world and it is
expected that it would continue to be one of the major sources of energy in the future also (Atil,
et al., 2014). The oil provides not only energy, but it also generates many by-products and the
subsidiary industries based on these products. The huge demand of oil has led to the creation of
oil industry, in which the companies are engaged in exploring of sites, producing, refining and
trading of oil. As it generates energy, oil is the backbone of many industries in the world, such
as, the automotive industries, by-products industries, agriculture and transport (Demirbas, et al.,
2017). Hence, oil price is very crucial factor of the world economy. The performance of the oil
dependent industries depends heavily on the oil prices. Falling oil price benefits some industries,
while it adversely affects the E&P industries. The rationale of the research paper is to find out

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the impact of the falling oil prices on the UK based E&P industries and how these companies
reacted to this changes.
1.8 Structure of the research
Chapter 1 focuses on the introduction of the research topic, study background, aims and
objectives, research questions and rationale of the research.
Chapter 2 is the Literature Review and it addresses previous literatures on the related topics to
gain some insight about the topic and to decide the research direction.
Chapter 3 presents the research methodology, which focuses on how the methodology of how the
research should be conducted.
Chapter 4 is the data analysis and discussion, which presents the data collection and analysis of
the result and discussions based on that.
Chapter 5 is the conclusion. It links the objectives with the results and presents limitations and
future scope of the study along with the recommendations for the E&P companies of UK for
future prospects.

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Chapter 2: Literature Review
2.1 Introduction
This chapter represents various instances from previous literatures to develop an
understanding of the reduction in crude oil prices globally and its causes and impacts on the oil
and gas industry of the UK, British economy as well as on the world economy. Firstly,
background information would be provided by the researcher to introduce the topic of the
research as the falling oil prices and its impact on the UK based E&P companies. Based on this
topic, the literatures would be chosen to find out the information regarding the oil and gas
industry of UK, causes of decrease in the global crude oil price, its impact on the British
economy and in particular on the E&P companies, and how the E&P companies reacted to the
falling oil prices. These would be followed by a conceptual framework of the research study.
Lastly, the summary of the chapter would be presented.
2.2 Background
2.2.1 Oil and gas industry of UK
The oil and gas industry of UK is one of the major industries of the nation. There are
numerous companies that are engaged in exploration and production of oil and gas in UK. The
major E&P companies are, BP (British Petroleum), Royal Dutch Shell, Perenco, Premier Oil,
Northern Gas Networks etc. These companies are spread out across the nation in various oil and
gas basin (Selley, 2012). This industry benefits the lives of people in many ways. Since, oil and
gas are one of the major sources of energy, the economy is heavily dependent on this industry.
The North Sea is the major area that is full of natural resources and maximum exploration and

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production is done in this area (Davies, et al., 2014). The oil and gas are beneficial for the
modern life in many ways. It supplies energy to the power industry and provides electricity to the
households and commercial purposes. It provides fuel to the cars, airline and ships to carry
people and goods all over the world and provides inputs for raw materials for producing
everyday consumer goods. Through its widespread supply chain, the exploration and production
companies in the oil and gas industries employ millions of people and make a significant
contribution in the British economy through, exports, technology and exports
(Oilandgasuk.co.uk, 2017).
98% of the total production of UK comes from the offshore fields and the service
industries of Aberdeen have been the leader in developing the technology for the hydrocarbon
extraction in the offshore fields. The major oil fields are located in the North Sea Central Graben.
The Brent Crude oil price from the North Sea of UK is the major benchmark for the international
trade for oil (WEF 2016). Since the first drilling of wells in 1965 from the United Kingdom
Continental Shelf (UKCS), UK has spent almost £58 billion (at 2008 prices) on the exploration
drilling. It spent another £1.4 billion money for searching new reserves. The country became the
14th biggest oil and gas producer in the world in 2008. In Europe, it takes the second position in
the production of oil, only after Norway (Papavinasam, 2013), and third position in gas
production, after Norway and Netherlands. It has been found from the ‘Economic Report by Oil
& Gas UK’ that, oil and gas provided of 70% of the total demand for energy in the nation. It is
also expected that, this industry would continue to provide this much amount of energy until
2030. This sector improved the balance of payments of UK by providing £30 billion in 2013 and
remained the largest investing sector and contributor to the nation GVA among the all other
industries in UK. The industry spent £26 billion as capital investment for offshore drilling in

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UKCS. The total expenditure in 2013 was £330 billion, which made it the biggest collaborative
spending in that year. Although the production dropped by 8% in 2013, still the nation was
among the top 25 producers of oil and gas in the world (WEF, 2016). The E&P companies of UK
and North Sea faced a 15.5% rise in the expenditures for operating costs, which amounted to
£8.9 billion and this resulted in the rise of the average cost of £17 per boe (Oilandgasuk.co.uk,
2017). Moreover, in 2013, there has been discovery of 13 new fields, which had the potential of
producing 392 million boe after coming on–stream. The Department for Energy and Climate
Change (DECC) approved another 10 new areas, which has the potential of yielding 460 million
of boe over the years. The E&P companies could increase the production activity, as there are
120 new development wells, 15 exploration wells and 29 appraisal wells. Hall (2014) stated that
along with all of these, the E&P companies of UK have generated 450,000 new jobs. Among
these new jobs, 200,000 opportunities are created in the supply chain, 112,000 are induced by the
economic activity in the industry and 36,000 are direct employment in the E&P companies.
2.2.2 Causes for fall in the global crude oil price
The oil industry faces very much volatility regarding prices. The cycle of oil prices goes
up and down quite frequently. After a boom of almost past four years, around 2015 October, the
industry was facing downturn and the crude oil prices dropped significantly. Since, the high
profit earning companies were facing a reduced earning, they had to decommission half of the
total oil rigs and had cut the investment in the exploration and production. This has lowered the
price for global crude oil (Skogdalen & Vinnem, 2012).
The reasons for falling oil price could be many and the major reasons are a strong USD,
over supply of oil and thus, decline in demand, OPEC policies for sustainability and nuclear deal
of Iran. According to a report by World Economic Forum, the crude oil price fell from $115 per

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barrel in June to less than $35 by the end of February of 2016. This was similar to the rapid fall
in oil prices during 1985-86 due to reversal of production cuts by OPEC. That fall happened due
to excess supply in the market, while the price fall in 2008-09 happened due to fall in demand.
The recent price fall is due to a combination of both of these reasons (WEF, 2016).
According to Kilian (2014), the emerging markets, especially China, is facing slowing
growth and this has resulted in a sharp fall in the commodity prices across the globe. It has been
observed that the oil price fall was considerably steeper than in the food and metals. Three points
can be summarized for this lowering impact on the global GDP. Firstly, in the advanced nations,
the decrease in oil prices have been passed on to the consumers, while the pass-through is
considerably less in the emerging markets. For example, in India and China, the government
reduced the subsidies on the fuel consumption to strengthen their fiscal position.
Secondly, Jackson and Roberts (2015) say that, the decline in global oil price driven by
supply usually raises the demand by transferring the resources to the customers with higher
propensity to spend from the high saving oil producers. However, this channel was muted
because the major oil producing countries were facing the pressures for raising the level of
spending and the consumer countries kept on repairing the balance sheets to handle the financial
crisis.
Thirdly, the oil industry faced a heavy short term drop in the investment due to fall in oil
prices and global investment in the exploration and production activities fell from $700 billion in
2014 to $550 billion in 2015 (Baffes, et al., 2015). The sharp fall in the investment in other
goods sectors has also contributed in the slow growth of the global oil industry. Thus, it is

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evident that, declining oil prices have been a significant contributor in the global financial
market volatility.
Strong USD has contributed significantly in the fall of the global crude oil price in the
past few years. As dollar is going at a 12 year high against Euro, the USD experienced
appreciations and oil prices faced a reduction. Strong USD leads to a fall in the global
commodity prices. On the other hand, OPEC was not willing to stabilize the oil markets and
hence, did not agree to cut the production. If the oil supply increases continuously due to
OPEC’s policies, the excess supply of oil in the market leads to a fall in the prices of crude oil
(Clyde&Co., 2016). At the same time, the demand for the crude oil is decreasing as the world is
moving towards renewable source of energy for sustainability. The economies are also facing
slow growth leading to a fall in the demand for oil. China’s currency depreciation is a major hit
to the global oil price as it is the largest oil importer of the world (Arezki & Blanchard, 2014).
2.2.3 Fall in global crude oil prices: Winners and losers
The sudden rapid fall in the global crude oil prices has consequences on the world
economy. Some economies gain from the price fall, while some lose. According to the analysts
of Morgan Stanley, if China’s currency, Renmimbi, gets devalued further, the oil could be
available for less than $20 per barrel. Although, too much supply of oil in the market and too less
demand for it leads to sharp fall in the oil prices, OPEC is still not willing to cut back production,
in the fear of further losses to the economies (Economist, 2014). According to a report in the
Straittimes.com, Ann Williams (2015) shows the comparative analysis of the oil exporter and
importer countries to see the impact of oil price fall. China and the United States are the major
winners from the oil price fall. The cheaper fuel has benefitted the Chinese economy as it is the
largest importer of oil. It made China to build up strategic oil reserves at a very low cost and

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enabled the energy companies to invest in energy assets. USA is another largest consumer of oil.
The average household spending on oil has decreased and that was saving around $60 per month
on the consumption of 60 gallons. However, Baumeister and Kilian (2016) state that the US oil
producers faced loss due to fall in the crude oil price, because the Canadian oil sands, some of
the US onshore shale oil formations and deep offshore oil fields in the Gulf of Mexico are quite
expensive areas for oil exploration and production. Fall in oil prices refers to the fall in profit
margins for these companies. However, the net effect on the economy was the overall gain from
the fall in the oil price, as other industries benefitted from lower cost of inputs and energy.
Japan’s currency depreciation has offset the fall in price of oil. The effect of the price fall was
slow to filter down to the customers and fall in Yen has resulted in balancing the net effect of the
price fall (Basher, et al., 2012).
The European countries have been experiencing sluggish economy for a long time and
the fall in oil price would boost the business and consumer spending. This would boost the
economies slightly. However, the slide in the oil prices also depresses the consumer prices,
which were very close to stagnating. The Euro zone, especially Greece, suffers from the threat of
weak inflation or Lowflation, and creates problems for the ECB, which wants to raise the
inflation rate from 0.3% to around 2% (Scholtens & Yurtsever, 2012). The main oil producing
countries of Europe, that is, UK and Norway face a challenge due to plunge in oil price and the
fall in revenues balances the benefits of the cheaper fuel.
The biggest losers due to the slide in crude oil prices are Russia and oil dependent
economies. As 68% of Russia’s exports consist of oil and gas and 50% of the federal budget is
dependent on the oil and gas, hence, this nation was mostly hit hard by the fall in global crude oil
price (West, 2016). At the same time, the declining Ruble has resulted in high inflation in the

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economy. Both these factors have led to rise in the pump prices. The falling energy prices has led
to a fall in Ruble against the USD and affected the economy in a negative way. Along with
Russia, the poor oil exporter members of OPEC, such as, Nigeria and Venezuela, who do not
have the low cost of production and large foreign reserves like the larger countries, such as,
Saudi Arabia, would face a big fall in their economies due to plunge in oil prices. Furthermore,
the biggest producer of OPEC, Saudi Arabia and, Qatar and Kuwait, who have the lowest
production cost, were in a comparatively advantageous position than their US rivals. Since, these
economies are heavily dependent on the oil production and exports, the fall in oil price would
definitely affect the economies in a negative manner (Economist, 2014).
2.2.4 Impact of falling oil price on the E&P companies of UK and North Sea Region
As stated by Hall (2014), the falling crude oil prices have a significant effect on the E&P
companies of UK and the North Sea region. The North Sea region is one of the most hostile
regions for exploration and production of oil due to its harsh climate and shale locations.
Exploration of oil is very difficult, hence, production cost is very high. Falling oil prices has led
to a fall in the profit margin for some companies and loss for some. IMF has found out that, the
oil and gas industry of UK has the highest cost structure among the other major regions of the
world, if the taxes are included and therefore, is very much vulnerable towards the volatility of
the oil prices. The effect of price fall faced the E&P companies, is also felt by the other sectors
of the economy. The oil production organizations had to cut their costs for paying less to their
suppliers. The lack of cash made the companies face challenges in payments and funding
operations, debt servicing, fulfilling the contractual obligations and funding of the new projects.
This also leads to a fall in the employment sector of UK. The companies cannot expand further
and cut their costs, which indirectly affects the job market. According to a report of Oil and Gas

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UK, the industry faced a job cut by around 120,000 by the end of 2016, since the peak in 2014
(Oilandgasuk.co.uk, 2016).
According to Davies et al. (2014), the E&P companies of UK and the North Sea region
had been spending more than their earning from the oil market, however, this practice is not
sustainable. Since, the fall in oil price in 2014, the companies are facing hard times to make
profit and sustain in the industry. Hence, the companies are feeling the pressure of improving
their performances and trying to find the efficient ways to restore their competitiveness, to draw
more investments and stimulate the activities in the North Sea region. The region is still full of
recoverable resources and the companies need to tap that for increasing their business.
2.3 Conceptual framework
Fall in global crude oil
price
Fall in profit for the
E&P companies of UK
Fall in cost of
production
Reaction of E&P
companies
Future prospects of the
E&P companies

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Figure 1: Conceptual Framework
(Source: Author)
Chapter 3: Research Methodology
3.1 Introduction
This chapter illustrates the methodology of the research paper. It highlights the different
aspects of the methodology of the research. It includes research philosophy, approach, design,
data analysis processes, sampling technique and sample selection. It describes the vision and
objectives of the researcher in regards to the research study (Mackey & Gass, 2015). The
researcher will be analyzing the secondary data on the performances of the E&P companies and
the impact of falling crude oil prices on the companies and on UK economy.
3.2 Research Philosophy
Research philosophy helps the reader to understand the direction of the research and the
thought process and vision of the research. It is chosen based on the ethics, values and principles,
appropriate for the research study. Various types of research philosophy are positivism,
interpretivism, realism and epistemology (Silverman, 2016). In positivism, the researcher studies
and analyses the data quantitatively. It is based on logical and scientific data analysis.
Interpretivism is based on the cognitive skills of the researcher. Under this philosophy, the
researcher interprets the data qualitatively to reach to a conclusion. Realism focuses on the
hypothesis testing of a real life situation and under epistemology, the nature of the method of
data collection is objective. The vision of the researcher is very important in this case (Neuman
& Robson, 2014).

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In this case, the researcher will be using the positivism method, as he will be using
quantitative method to analyze the secondary data, extracted from the already published
authentic sources.
3.3 Research approach
The researcher will be using quantitative approach to analyze the data. This approach is
mainly associated with the positivism philosophy. Along with that, the researcher will be
assessing various assumptions and predicts about the future possibilities. In this case, the
secondary data on the E&P companies of UK and North Sea region will be analyzed
scientifically, based on inferences. Hence, inferential data analysis method will be used under
quantitative approach.
3.4 Research Design
As stated by Flick (2015), research design outlines the structure of the research. It is used
to analyze the cause and effect relationship among the parameters of the research study. Various
research designs are used in research studies. The two major types of research designs are
inductive and deductive. Inductive design includes the generation of a new theory from analysis
of the collected data. On the other hand, in the deductive design, testing of a hypothesis based on
an already established theory is performed, with an emphasis on causality (Roberts, 2013). In
this study, the researcher will adopt the deductive research approach or design as he will be
testing the impact of fall in the global crude oil price on the performances of the E&P companies
of UK.

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3.5 Research purpose
This illustrates the goals of the research study. The basic goal of a research paper is to
find out a concept or explain and forecast a situation (Henwood 2014). Exploratory and
explanatory are two approaches that describes the purpose of the research paper. Exploratory
research is undertaken when a subject has not been studied before and on the other hand, the
explanatory approach is undertaken when the researcher aims to explain the cause and effect of a
phenomenon based on some already established theory (Lewis, 2015). In this research paper, the
researcher will be following the explanatory research method, as he will be assessing an
economic and social phenomenon on the basis of an economic event.
3.6 Research strategy
Creswell (2013) points out that research strategy is the fundamental plan of the researcher
about answering the research questions. This determines the way the researcher will choose to
find out the solutions for the research objectives and the questions. In the current research paper,
the researcher will be assessing the secondary data, collected from various online sources.
Quantitative analysis of the secondary data will be done, under thematic study, to find out the
impact of fall in the global crude oil price has on the performances of the E&P companies. Under
thematic approach, the data analysis will lead to a credible direction to find out the solution.
3.7 Data collection
Primary and secondary are two types of data that are used in the research studies. The
data, which is collected directly from the field of study is known as the primary data. This type
of data is usually collected through questionnaire survey and interviews. On the other hand, the
data, which is collected from an already published authentic sources, such as, governmental
websites, official sites, books, journals, magazines and online sources, is known as the secondary

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data (Beer & Faulkner, 2014). Primary data helps in gaining an in-sight of the research topic
from the people who are directly affected by the issue, while secondary data helps to validate the
results of a test and it is time and cost saving, and forms a basis for primary research. In this
research study, the researcher will be collecting secondary data from various online sources, such
as, official websites and annual reports of the E&P companies of UK and North Sea and from
various publications in journals and literary papers.
3.8 Data analysis
There are two types of data analysis process available, namely, qualitative and
quantitative. The numerical data is analyzed using quantitative approach and the qualitative
approach is used in case of categorical data. If the collected data is numeric, then quantitative
approach is the most suitable method for analyzing it (Eriksson & Kovalainen, 2015). Various
statistical method, such as, frequency analysis, descriptive statistics, correlation, regression etc.
will be used accordingly by the researcher to analyze the data.
3.9 Limitations
The researcher will focus only on the secondary data analysis to find out the impact of the
fall in crude oil prices. This narrows down the extent of research. To save the time and effort and
reduce the robustness of the paper, the researcher will not go for collecting the primary data,
which could have given a different perspective on the research.

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Chapter 4: Data analysis & research findings
4.1 Introduction
This chapter focuses on the analysis of the data and presenting the findings in a relevant
manner. The researcher has collected secondary data from various sources on the E&P
companies of UK and North Sea region. These data were collected from official websites and
annual reports of the companies and UK government, publications, reports, news articles, books,
journals, and various other scholarly articles. The data were analyzed using various statistical
tools to find out the impact of the fall in the global crude oil prices on the performances of the
E&P companies. The researcher has adopted the thematic analysis approach to describe the
findings of the research.
4.2 Findings
4.2.1 Fall in the global crude oil price
There has been a dramatic fall in the global price of the crude oil in 2014 and it has sent
its ripples across the world. Since, OPEC has made a decision of keeping its production level
unchanged in Nov 2014 and again re-affirmed in June 2015, the price of oil stayed between USD
60 and 65 per barrel, and this forced the oil companies to cut down their capital expenditures and
investments on exploration along with implementation of efficiency measures and cost cutting.
The fall in oil prices has hit hard the oil industry of the North Sea region that operates
with depleting and ageing oil fields. George Osborne, the Chancellor, announced a £1.3 billion
package for supporting the industry. This step had a mixed reaction from the companies. IMF
found that UK’s oil industry has the most expensive cost structure in the world, inclusive of the

24DISSERTATION
taxes and therefore, is most vulnerable to a lingering downturn in the oil prices. The companies
of UK had to face the situation of over supply of oil and falling prices of the oil.
As per the Monthly Oil Market Report (MOMR) of OPEC of June, it is stated that, the oil
exports of UK have seen profit due to weak GBP following the Brexit negotiations, started in
March 2017. It has benefitted from the improving competitive position of the country. In the
report of November 2017, the Brexit negotiations have entered its sixth round and the GBP is
still weaker to the Euro. The country has been facing inflation and lowering of the oil prices has
benefitted the economy positively (Opec.org, 2017).
Figure 2: UK diesel oil demand, year-on-year change (June report)
(Source: Opec.org 2017)

25DISSERTATION
Figure 3: UK diesel oil demand, year-on-year change (November report)
(Source: Opec.org 2017)
In the June report, OPEC shows that the oil production of UK was 60 tb/d in 2016, while it was
revised to 40 tb/d in 2017. It is not expected to rise in the near future (Opec.org, 2017).

26DISSERTATION
Figure 4: Trend in oil prices, 2011-2017
(Source: Macrotrends.net 2017)
It is found that, the prices for crude oil dropped to $28 a barrel in January 2016, which is
a 12 year low. It confounded the earlier expectation of a recovery in first half of 2015, which
would result in a new price range of $40-70 a barrel in 2016. Since then the oil has traded in the
range of $40-50 per barrel influenced by the commercial stock overhang.
Figure 5: Monthly oil and gas prices
(Source: Oilandgasuk, 2016)
In the oil industry, NBP is the National Balancing Point, which is the location for virtual
trading of sale and exchange of the natural gas in the UK. In the above graph, the difference
between the actual dated Brent prices of oil and gas and the NBP of the month ahead has

27DISSERTATION
decreased since 2015-16. The gap was huge in 2014 and after that, it has a sharp decline in 2015
and 2016.
In 2016, the UK Continental Shelf (UKCS) generated a deficit in the free cash flow of
approximately £2.7 billion, which is an improvement from the deficit of £4.2 billion in both 2015
and 2016. This is due to the rise in production and fall in the expenditure.
The total expenditure of the exploration activity on the UKCS has fallen from £21.7
billion in the year of 2015 to £26.6 billion in 2016 as the companies postponed the discretionary
spending. The companies also reduced the capital investments and operating costs to reduce the
expenditure further. As the oil prices have fallen, the only way to increase the profit level is to
reduce the expenditure and capital investments on the exploration and production activities.
The UK has been importing the crude oil and its products since 2005. The six primary oil
refineries of UK prefer to refine the lower valued imported crude oil than the domestically
produced crude oil. The major destination of the crude oil of the UK is the North West Europe,
accounting for almost 60% of the total production, that is, 375,000 b/d. The level of exports to
South Korea increased to 110,000 b/d as they took the benefit of EU-Korea Free Trade
Agreement. This increase in trade was triggered by a swing in the production, leading to more
supply in the market and by the fall in crude oil prices. The Brent prices reflect the oil market
instability (Oilandgasuk.co.uk, 2017).
4.2.2 Impact of lower Brent
Since, OPEC has been maintaining the supply of oil, the prices have become extremely
competitive and the North Sea oil fields have got a new market, that is, Asia. The supply of
North Sea oil to Asia has increased multiple times in the last seven years. When the Brent closed

28DISSERTATION
at 57 cents per barrel to Dubai, the numbers of North Sea oil tankers to Asia became
approximately 540,000 barrels per day. Hence, the Brent has boosted the export of the North Sea
oil to Asia. A fall in Brent has encouraged the North Sea oil traders to ship almost 42 million
barrels to Asian market, which is 22 million more than the previous year (Longley, et al., 2017).
(Source: Longley, et al., 2017)

29DISSERTATION
(Source: pwc.co.uk, 2016)

30DISSERTATION
It can be seen that the operating cost of UK is highest among the major oil production
countries while the level of production is very less. The operating cost is 39.20 USD a barrel
while the oil production is only 0.70 million barrels in a day (West, 2016).
After the fall in the global oil price, the production cost remained similar but the profit
level fell significantly as the level of revenue of the E&P companies of UK had decreased. Since,
UK has higher production cost due to hostile extraction conditions, and price fall would affect
the revenues of the companies, thus, it can be inferred that, the operation cost of the companies
would increase but production cost would be unaffected.
4.2.3 Impact on employment
As the oil industry faced a severe hit due to fall in prices, the employment was extremely
affected. As the price of oil fell in 2014, the jobs in the offshore oil industry of UK were strained.
It continued to fall in 2016 also. As the Brent Crude price came down to $50 per barrel in 2016,
it is found that, the jobs fell by around 84,000 and came down at 370,000 in 2015 from 450,000
in 2014. It further came down by another 40,000 in 2016 and the employment figure reached to
330,000 (Oilandgasuk.co.uk, 2016). The jobs include the following categories, such as, direct
employment opportunities by the E&P companies and supply chain companies supporting them,
indirect jobs by extensive supply chain, exporting products and services overseas and those jobs,
which are created by the spending of the sector in the economy, for example, transport, hotels,
food and beverages and many more. As the scope of the industry has narrowed due to the fall in
prices and its production cost has increased, the industry has started downsizing and mergers and
the level of employment fell sharply. It has also been found that the employed people also
suffered due to pay cuts (Vaughan, 2017).

31DISSERTATION
In the North Sea region, within November 2014 to June 2016, almost 65,000 jobs have
been cut, which is almost 15% of the total workforce of oil and gas industry of UK. This is
immediate reaction by the E&P companies of UK and North Sea region to the fall in the prices of
crude oil (Bawden, 2016).
Figure 6: Total jobs in oil and gas industry, 2013-2017
(Source: Vaughan, 2017)
Employment in the UK offshore oil and gas
industry
2013 2014 2015 2016
Direct 36,600 41,700 38,200 34,000
Indirect 198,100 201,000 160,600 151,500
Induced 206,200 211,100 170,800 144,900
Total 440,900 453,800 369,700 330,400

32DISSERTATION
employmen
t
Table 1: Level of employment in UK offshore oil and gas industry
(Source: Oilandgasuk.co.uk, 2017)
2013 2014 2015 2016
0
50,000
100,000
150,000
200,000
250,000
Employment in the UK offshore oil
and gas industry
Direct
Indirect
Induced
(Source: Oilandgasuk.co.uk, 2017)
4.2.4 Impact on capital investment, spending and profit level
The oil and gas industry of UK is also suffering from lack of investments. In the North
Sea region, in 2016, 14 exploration wells and 8 appraisal wells were drilled but production has
not started yet. Among those, only three oilfields got the approval. The decommissioning of old
oil fields involved increasing expenditure, such as, removal of a Shell’s platform in the Brent
field involved a big expenditure by the company.
As stated by Bawden (2016), as the oil price dived down to $28 per barrel from $115 per
barrel, the reason found is the over supply of oil and lack of demand in the market.

33DISSERTATION
Year Average oil prices per barrel (USD)
2017 50.73
2016 40.68
2015 49.49
2014 96.29
2013 105.87
2012 109.45
2011 107.46
2010 77.38
2009 60.86
2008 94.1
2007 69.04
Table 2: Average oil prices per barrel (USD)
(Source: Statista.com, 2017)

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2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0 20 40 60 80 100 120
69.04
94.1
60.86
77.38
107.46
109.45
105.87
96.29
49.49
40.68
50.73
Average oil prices per barrel (USD)
Average oil prices per barrel
(USD)
Figure 7: Average oil prices per barrel (USD)
(Source: Statista.com, 2017)
From the above table and figure, it can be seen that, the average price level has gone
down drastically in the past 10 years. Among these, the major fall was seen from 2014 to 2015.
The price became almost half in 2015 than that in 2014. It fell further in 2016 and became the
lowest in the past 10 years. While the price was higher, the economy as a whole did not have
much benefit but the profits of the E&P companies of UK were higher.
According to experts, the total impact of the price crash is expected to last to the end of
the decade since the international oil industry has dramatically reduced investment and spending,
worth of total £705 million or $1 trillion. Hence, it can be said that the effect of the falling prices
of oil has cast a significant impact on the expenditures for global upstream development. The

35DISSERTATION
E&P companies have responded to this price fall by cancelling or deferring the projects and
thereby reducing the costs (pwc.co.uk, 2017).
(Source: WSJ.com, 2017)
According to a report by Wall Street Journal, the cost of production of oil prices in the
major economies has been depicted in the following figures. The components of costs are the
capital expenditure, production cost, gross taxes and administrative or transportation costs. It can
be seen that, UK has the highest cost of production among the major oil producing and exporting
countries of the world (WSJ.com, 2017). In the following figures, the proportions of different
costs are illustrated.

36DISSERTATION
(Source: WSJ.com, 2017)
The cost of production of oil is highest in UK due to the hostile conditions near the oil
fields. Since, 1970, the North Sea is major production area in the UK and the remaining
resources require further costly and advanced technology for extracting and the ageing
infrastructures require high level maintenance. Hence, 51.1% is the capital cost. If the oil prices
remain low for long term, then profit level of these companies would suffer.

37DISSERTATION
(Source: WSJ.com, 2017)
(Source: WSJ.com, 2017)

38DISSERTATION
(Source: WSJ.com, 2017)
From the above figures it is seen that, the production cost and administrative or transport
cost are the highest in UK while the gross taxes are zero.
4.2.5 Future prospects
The British oil and gas industry will be facing a hard blow in the future if the oil prices
remain low. However, the British economy as a whole would be benefited from the lower prices
of oil as this is the backbone of majority of the industries. Transport cost would be reduced,
which would drive down the production cost. This is a major savings on part of the households
and businesses in the economy. Hence, a part of economy will suffer from low oil prices while
the majority will reap the benefits of declining costs and increasing profits (Bawden, 2016). As
the oil price is showing a sign of rising above $50 a barrel, it is expected that the major oil
producers of the world might think about freezing the production to avoid a decline in price in
the future.

39DISSERTATION
(Source: fullfact.org, 2015)
The future revenues of the oil and gas companies will be determined by the continuous
changes in the price of oil and gas and the level of extraction, the level of investment in that
particular area and the cost of further exploration and expanding production. The E&P
companies of UK will have to face the effects of Brexit as the pattern of business would be
changed.
It is expected that, in the next five years, the revenues could fall by £100 million or it
could increase by £2.4 billion (pwc.co.uk, 2017). According to a forecast by the Scottish
government, Scotland can receive a good amount of revenue till 2018-19 based on the
geographical share of the oil shales, and it is expected that considering the high price, production
level, lower cost of investment, exploration and appraisal, the revenue could rise by £2.4 billion.
However, during the same period, if the oil price does not rise and cost of exploration increases,

40DISSERTATION
then it could face a loss of almost £100 million, which would be coming from the total oil fields
of UK, North Sea being the major region.
(Source: Clyde&Co., 2016)
According to the forecast by OBR, the chances of loss are greater than the profits. It
predicts that the companies of UK can face a fall in the revenues during this period. However,
the impact of Brexit on this industry is still under anticipation.
PWC mentions in a report about the future of the North Sea oil and gas industry. Being
one of the oldest basin for producing hydrocarbon, this region is contributing majorly to the
British and European economies for the past five decades. PWC has tried to find out the potential
of this region that can bring prosperity to this region. The region still has almost 20-30 billion
boe, which is undiscovered and which has immense scope in the future. At the same time, the
priorities for low carbon emission should also be incorporated into the agendas for a sustainable
future. Along with that, cost efficiency is another priority for the companies to increase the profit

41DISSERTATION
level. The basis also needs new ideas for reaping the opportunities to the fullest and manage the
change and disruption simultaneously.
Goldsmith (2017) highlights that, the British oil and gas industry has grown the
confidence in the business. It is found that, in spite of the low price drag, almost 58% companies
are predicting growth in the coming years. On an average, the companies are expecting a 26%
growth on their present annual turnover in the next one year. Despite the blow of the reduced oil
prices, the oil and gas industry of UK has proved to be one of the most resilient industries of the
nation. Goldsmith found that, the percentage of companies anticipating job cuts has come down
from 32% in 2016 to 19% in 2017. Along with that, 55% of the companies are expecting to
increase their employee headcount. The biggest challenges faced by the oil and gas industry are
rising production cost (48%), value of GBP (44%), exchange rate volatility (41%) and
uncertainties due to Brexit negotiations (35%) (Goldsmith, 2017). The industry expects to meet
the cost challenge by adopting new processes and technologies, and increasing the daily
operational efficiencies. According to the Director of the Oil and Gas Institute, Paul de Leeuw,
as the oil price has become more than half from that of 2014, the industry must have to focus on
adjusting the cost base and improving the operational efficiency. Hence, short term delivery
would be the focus.
Alison Baker says that although the UK oil and gas industry is facing the challenges for
over supply, transition towards a low carbon world, cost management, working capital and
investment issues, the industry still has chances of recovery, provided the government takes
proper action on the corporate regulations and supply chain management that would secure the
future value of the North Sea Basin. It should also ensure a strong position of this basin as a
specialist skills and innovation hub in the arena of decommissioning. Cooperation among the

42DISSERTATION
government and the E&P companies is very important. In the current situation, a smart strategy
that would sustain the flow of investment in the oil and gas in the nature basin of North Sea and
protect the long term revenues from taxes will be the reduction in the tax rates on the E&P
companies. A reduction in the headline rate, that is ranging from 50% to 6.75%, in the stealth
taxes, such as, license fees and in the burden of infrastructure tax in the next budget of UK, can
provide opportunities for improving not only the future of the North Sea oil and gas, but also a
better situation for stimulating investment for the tax paying citizens (Marlier & Baker, 2016).
On the other hand, according to Marlier, as the production of the North Sea basin is
declining due to mature fields, worn out ageing infrastructure and higher cost. The level of
output has become one third of the level that was in 20 years ago. Since 2000s, the gas
production has fallen by two-thirds. The collapse of the crude oil prices that started in the mid-
2014 has aggravated the removal of prospects of revival of the North Sea, thereby increasing the
dependency on the shale. The shale development in UK faces huge challenges and obstacles. A
complex geography, stronger opposition in the domestic market, regulatory hurdles and less
favorable land ownership rights are the challenges for the shale development. This makes the UK
shale more costly to dig out than the shale in the USA. Since, the energy prices are likely to
remain low for the next few years, the E&P companies might not find it to be a viable option and
the shale reserve of UK could remain unexplored for another few years (Marlier & Baker, 2016).

43DISSERTATION
Chapter 5: Conclusion and Recommendations
5.1 Introduction
This is the final chapter of a research paper. The researcher puts forward concluding
remarks of the research paper in this chapter. In this paper, the researcher has used the deductive
approach to draw a conclusion of the paper. He has collected secondary data from various
official websites of the E&P companies of UK and the North Sea region, several governmental
websites, various journals, magazines, news articles, online publications etc. The analysis of the
data has been performed on the basis of research objectives, questions and literature reviews. The
researcher has adopted the thematic analysis approach on the secondary data. The data has been
collected and analyzed using various themes and the concluding remarks are presented in this
chapter.
5.2 Linking to the objectives
5.2.1 Linking to the first objective
The researcher aimed to find out the changes in the production and performance scenario
of the E&P companies before and after the fall in the global crude oil price. For that, the data has
been collected from various online publications and news articles. As it is found that the price of
crude oil fell sharply during 2014 and onwards, the cost of production of the E&P companies of
UK and the North Sea region has been increased too. The North Sea region presents quite harsh
climatic and geographical conditions for oil exploration and hence, the cost of production was
always higher for the exploration and production companies. However, when the oil price was
higher, the profit margin of these companies was higher too. As the over supply of oil in the

44DISSERTATION
market led to fall in the oil price sharply, the best decision would have been to cut the production
as well as the supply of crude oil in the market. However, OPEC did not agree to cut down the
supply of oil and hence, the E&P companies suffered from low profit margin. The report by PwC
shows that the operating and production cost is highest in UK among all the oil production
countries. The fall in the oil price has led to a fall in the revenues of the companies and it has
been reflected for the companies in UK also.
5.2 Linking to the second objective
From the collected data, it is found that, the falling prices of oil have a severe impact on
the employment in the oil and gas industry. When the prices of oil started falling in the 2014, the
jobs started to shrink in the industry. As the revenue of the oil companies was reduced by the oil
price fall, to make profit, the companies started to cut down the jobs. They could not sustain to
maintain a big employee base and hence, to reduce the operational cost, the companies reduced
their employment. As seen from the reports of Oil and Gas UK, when the oil price came down to
$50 a barrel, the employment fell from 450,000 in 2014 to 370,000 in 2015. In 2016, it further
decreased by another 40,000 and the level of employment reached to 330,000. The direct,
indirect and induced employment all got affected by the fall in the oil price, however, the impact
on the indirect and induced employment was much higher than on the direct employment. It is
also found that, in the North Sea region, around 65,000 people lost their jobs within 18 months,
which is almost 15% of the total labor force of the oil and gas industry of UK. Hence, before and
after the fall in the global crude oil price, the human capital investment of the E&P companies of
UK decreased as level of the human resource in the companies were reduced.
It is also found that the oil and gas industry of UK was suffering from lack of investment.
There is lack of new oil fields, lack of approval for already drilled exploration wells, and

45DISSERTATION
decommissioning of old oil fields. All these activities require a big amount of capital, especially
due to the harsh conditions of the North Sea region, the level of funding needed is much more
than what is needed in any other region. Hence, there is barrier regarding the amount of capital
investment in the oil and gas industry of UK. In the average price of a barrel of oil, the capital
spending consists of almost 50% in UK, which is again highest among all the oil producing
countries. Hence, the fall in oil price has hit the level of capital spending in UK. Thus, the impact
of the fall in the oil price was reflected in the operational cost of the E&P companies. Lack of
investment is stopping the companies to explore further, especially when the revenue is going
downwards after the price fall.
5.3 Linking to the third objective
It is evident from the data, that, if the price of oil remains low for a long time, then the oil
and gas industry of UK will facing more challenges. The level of employment in this industry
will not rise, the pressure of production will go further high, and the companies will face further
reduction in revenues and profit. Hence, continuous changes in the oil price, level of exploration
and production and level of investment and the operating cost will determine the prospects of the
oil and gas industry of UK. Apart from that, the impact of Brexit is still ambiguous and it is too
early to decide on the effects of the E&P companies and their businesses. However, experts
predict that in the next five years, the price of oil could increase if the production can be frozen
and then the revenue could increase by around £2.4 billion. At the same time, there is also a risk
of a fall in the revenue by almost £100 million if the oil prices do not rise. However, it is seen
that, there is many fields in the North Sea that need to be explored and if the companies can
operate with cost efficiency, the future can be good. Many companies are expecting growth in

46DISSERTATION
the coming years and rising employment and tax cuts are expected also to improve the condition
of the industry.
5.3 Recommendation
From the above study, the researcher has identified few areas where there is a scope for
improvement. It is observed that the oil fields of the North Sea region are going through
significant changes. The pressure of transition towards sustainability by reducing the carbon
emission, following the COP21 initiative, has been increasing quite rapidly and he companies
must adopt the new rules and regulations while doing their exploration and production. The
experts believe that North Sea still has a future, if some of the issues can be addressed in a timely
manner.
 Potential: The North Sea has almost 20-30 billion boe of the undiscovered energy
resources in the West of Shetland, near the Atlantic margin and on the UK Continental
Shelf or NCS border. These potential resources should be explored by the companies.
 Collaboration: The E&P companies should come forward in a collaboration for a mutual
benefit. As the industry is suffering from less investment and lack of manpower after the
fall in price, hence, it is the best solution by the companies to work jointly to explore the
undiscovered resources.
 Need for efficient leadership: The North Sea basin is very crucial for the oil and gas
industry of UK and hence, during the tough time, the basin needs many new ideas
coming from efficient leadership. The basin needs disruption in the old ideas and change
in ideas at the same time, as well as, recognizing and utilizing the benefits of the existing
experience and wisdom to have a turn around.

47DISSERTATION
 Taxation policy: To improve the deteriorating condition of the E&P companies, the UK
government must change the taxation policy. There should be cut in the taxes as long as
the oil prices are not improving.
 Cost efficiency: The basin of North Sea requires embedding cost efficiency to increase
their profit margin.
 M&A activities: The deals on M&A were stalled because of lack of funds,
decommissioning liability issue and complexity and hence, the deals are continuing
through the innovative solutions.
 Low carbon emission: It is a highly important issue in the modern world and the E&P
companies of UK must incorporate measures to reduce the environmental damage by
carbon emission.
5.4 Future scope of the study
The researcher hopes to contribute in the future studies regarding this subject through his
research paper. The study throws light on the specific areas on the impact of global fall in oil
prices. In future, the researchers may consider taking the case study approach by choosing a
particular E&P company and collect primary data through surveys and interviews on the
performance of the oil companies and about the experts’ views to get a more clear view about the
operations of the industry. Several other aspects, such as, sustainability and profitability of the
industry can also be studied in the future with the help of this research paper.

48DISSERTATION
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