The British public has spoken - as have the oil, money and stock markets. With a narrow margin, the leave campaign in the UK's referendum to stay in or leave the EU won by 52% to 48%, ending the UK's 43-long membership in the EU.
Shares on the FTSE 250 index dropped 11.4% this morning - the biggest fall on record according to the Financial Times, following the referendum result. The pound dropped to US$1.3236, a fall of more than 10% and a low not seen since 1985, reported the BBC. Before the result was announced, with traders believing in a remain vote, the pound had risen to $1.50. The price of crude also fell $2.68/bbl to $48.24/bbl, its biggest fall since February.
The move has resulted in the resignation of the UK's Prime Minister, David Cameron, who said a successor would be in place by October.
The UK's decision to exit Europe could spark a renewed campaign for Scottish independence, following the 2014 referendum which saw a majority to vote to stay in the UK - yet Scottish, and Northern Ireland, voters yesterday voted in the majority to stay in the EU, pitting them against English and Welsh voters, who in the majority voted to leave.
But, what does this mean for the UK's oil and gas industry? For a period, uncertainty, similar to the entire economy of the UK. But, analyst Wood Mackenzie says it expects impact on the upstream sector to be limited, because it is fully regulated by the UK government. But, the exchange rate may impact costs and margins. "A sustained depreciation of the pound may benefit upstream operators from a lower cost base relative to the US dollar denominated oil and gas prices," the firm said.
Shell, which had said it backed the remain campaign, said it will work with the UK government and EU on any implications it had for it. BP has said it is too early to understand the detailed implications, but that it did not expect the result to have a significant impact on its business.
“However, we do not currently expect it to have a significant impact on BP’s business or investments in the UK and Continental Europe, nor on the location of our HQ or our staff,” BP said in a statement.
Prior to learning the outcome of the vote, industry analysts Douglas Westwood said: "There will undoubtedly be a number of 'Brexit' implications for UK oil and gas, however, the current low oil price environment is likely to play a far larger role in shaping the form and structure of the UK energy industry over the coming years."
Possible concerns included limited labor and capital mobility, as well as depreciation of the pound, which could increase the cost of energy - since 2013, the UK became a net importer of petroleum products.
This morning, business advisory firm PwC said as a global business, the oil and gas industry should be less impacted by the EU referendum result.
"However," said Alison Baker, PwC's UK and EMEA oil and gas leader, said, "there will be some hurdles on the road ahead. Any further downturn in the economy or volatility in the oil price could cause further distress in the sector and in particular further project sanction deferrals might have significant consequence for the service sector who also rely on mobility of employees around the world."
PwC also highlighted wider energy issues, such as achieving a secure supply, decarbonizing the energy industry and delivery electricity and gas at affordable prices, which it says will be more challenging without the support of a European wide energy system. However, Wood Mackenzie said energy policy was unlikely to change greatly.
A poll of the industry by Aberdeen & Grampian Chamber of Commerce last month found that some 45% were finding it difficult to reach a clear view about whether a vote in favor of exiting the EU would be positive for the oil and gas sector. Some 20% said it would make little difference. Most expressing a firm view felt remaining would be the best outcome, with 27% saying Brexit would be unhelpful and 8% who said it would be positive.
At the time, Uisdean Vass, oil and gas partner at Bond Dickinson, a law firm, said at the time: “One thing about which the majority of the industry is united is the impact of the European referendum. Most are 'unfazed' at the outcome so, just as with the Scottish independence referendum, operators and contractors have shown they believe constitutional matters have little impact on their businesses.”
Industry trade body Oil & Gas UK said it has maintained its political neutrality throughout the debate but would said it now hoped all involved "will now come together and work constructively to make this transition as smooth as possible and we ask that the UK Government clearly outlines the process which will follow to minimize any potential period of uncertainty."
Institution of Engineering and Technology said a vote to leave the EU could result in a number of negative impacts on UK engineering, including exacerbating the UK’s engineering and technology skills shortage by making it more difficult for companies to recruit engineers from other EU countries.
Other issues it identified included changes to access to global markets and companies, a decline in funding for engineering and science research, and a weakening of the UK’s influence on global engineering standards.
Next steps
In order to leave the EU, the UK must notify the EU of its intentions, opening a two-year window to negotiate the terms of the exit, says analysts Wood Mackenzie. It is unclear when this will happen and the negotiations will determine the long-term economic impact, relating to free-trade, free movement of people and capital, etc. Wood Mackenzie says it expected to downgrade its current UK GDP growth forecast from 1.9% in 2016 to 1.5% in 2017.
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Brexit: Economic downturn greatest concern
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