March 19, 2020 / 12:02 AM / 15 days ago

Britain's oil, gas industry calls for government cash as price crashes

* OGUK expects more insolvencies

* At $35/bbl OGUK sees basin’s negative cashflow at $1.4 bln

* Maintenance schedules under review

By Shadia Nasralla

LONDON, March 19 (Reuters) - Britain’s oil and gas sector needs financial help to survive, industry body OGUK said, as the oil price crash triggered by the coronavirus and a Saudi-Russian price war means they may be unable to keep producing hydrocarbons in the North Sea.

Benchmark oil prices on Wednesday fell to around $25 a barrel, their lowest level in 17 years, as measures to tackle the virus outbreak have had a drastic impact on demand.

For industry as a whole, Britain has already said it would launch a 330 billion-pound ($399 billion) lifeline of loan guarantees and provide a further 20 billion pounds in tax cuts, grants and other help for businesses facing the risk of collapse.

OGUK Market Intelligence Manager Ross Dornan said it was not clear how OGUK members could access the government funding and it might not be enough to ensure the survival of some of them.

“In the longer term, we are also looking for further support from the government in terms of a sector deal,” he said.

He did not give details and said it was too early to say how much money the industry would need or whether the shift to lower carbon energy might be an added complication.

Oil and gas companies have has already been struggling to attract investors because of the shift away from fossil fuel, including the British government’s aims for net zero carbon emissions by 2050.

One of the most mature basins in the world and the home of the Brent crude stream that underpins global oil prices, the British North Sea is one of the most expensive places to produce oil.

At prices of $40 a barrel and 25 pence a therm for natural gas, the OGUK said it expects its oil and gas producers to “effectively be cash flow neutral”. At $35 a barrel, the basin would fall into a negative cash flow of around 1.2 billion pounds ($1.38 billion).

Producers world-wide have cut spending and dividends following a price crash that has seen benchmark oil futures on track for their worst quarterly fall since the 1980s.

Some might not stay afloat.

“We are likely to see more insolvencies and consolidations in the market,” Dornan said.

The British North Sea produced about 1.7 million barrels of oil equivalent per day last year.

Dornan said lower activity and investment might lead to lower output, but not immediately.

“I think there is enough hooked-up, sanctioned resource right now to maintain production levels at around the current rates in the next year, 12 to 24 months,” he said.

Maintenance work, including in June at the Forties Pipeline System that is central for crude streams underpinning the Brent benchmark, could be subject to change.

“It’s a work in progress, any activities are going to be under review,” he said. ($1 = 0.8684 pounds) (Reporting by Shadia Nasralla; editing by Barbara Lewis)

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