The fall out of the Covid-19 pandemic has not only driven the UK to the third highest reported Covid-19 related deaths globally as of early July 2020, but is also set to significantly dent GDP growth and raise unemployment for the year. Despite this, the UK upstream oil and gas sector has become leaner and more resilient over recent years as pullbacks in investment and reduced operating costs help provide a stronger cash flow outlook under newly weakened oil and gas prices.

Despite the direct impacts of Covid-19 on the UK oil and gas sector, production levels are expected to remain relatively unaffected in spite of a number of operational assets being hit by Covid-19 related disruptions. The UK has a steady near term production outlook through already sanctioned developments and by 2024, approximately 20% of the production volume is forecast to be derived from currently un-sanctioned projects. The last three years have seen significant field reserves come on-stream in the UK through developments sanctioned prior to the 2015 price crash such as Culzean and Schiehallion, the production from which is helping the UK avoid production declines in the short term.

*Post-tax cash flow excludes exploration expenditure

Despite a relatively expensive operating environment, a favourable fiscal regime and vast active infrastructure helps to keep the UK oil and gas sector attractive. Under a base case oil price of US$45/bbl for 2020, the outlook for post-tax cash flow/boe is in line with 2013 levels when oil prices were over US$100/bbl. The country has been able to improve cash flow margins as investments are reduced and costs optimised.