With the UK Government announcing it is now in the “delay” stage of its four-part strategy to tackle COVID-19, many organisations in the oil and gas sector are preparing for the impact of the virus on their businesses. This includes the introduction of, or increase in, working from home. In the oil and gas sector, those who are office-based are generally able to work from home with little substantive impact on business functionality. By comparison, and somewhat stating the obvious, those who work offshore, cannot do so. This extends to onshore workers who work on-site as part of the supply chain, for example in logistics, delivery, and shipping. It is virtually impossible for these people to work from home or remotely. The very nature of their role requires them to be physically present at a specific location.
Should a proportion of energy sector workers (both office and site based) contract the virus, this could lead to workers firstly, not being well enough to work and secondly, having to self-isolate.
The potential consequences of this are significant. A lack of on-site personnel will lead to delays and interruptions to supply and service delivery, and platform operations. Logistics providers may be delayed in, or unable to, send supplies to offshore platforms. This could result in various platform operations, such as fabric maintenance, inspection, repair and replacement of equipment and drilling activities, being delayed or suspended. This presents significant consequences in respect of health and safety compliance and ultimately, energy production. Operators who use contractors to work on their platforms will experience an administrative burden in engaging with contractors and aligning their respective COVID-19 policies. Essentially, if there is a shortage of available personnel both on and offshore, production could be forced to stop.
COVID-19 has caused huge disruption to international supply chains already (particularly given the decrease in the manufacturing of goods in China recently). If usual suppliers are unable to meet their commitments, companies will have to look at alternatives. Given the global impact of COVID-19, many suppliers may be in similar positions. Companies should be thinking about their own supply chains and the effect of a disruption to their business and their clients. It is advisable for both service companies and operators alike to establish working groups tasked with identifying existing or impending supply shortages and how these may impact their business. This will allow contingencies to be developed where alternative suppliers can be utilised. The usual credit checks and protocols will need to be carried out on new vendors and this, along with cost efficiency considerations, will need to be factored into timelines and the decision-making process. The importance of this is amplified by the number of suppliers in a chain or network.
Consideration will need to be given to the contractual arrangements surrounding the supply of goods and services (and personnel). Working groups should consider the effects, and associated risks, of suspending or terminating contracts. Legal advice should be sought on this before proceeding. Related considerations include whether COVID-19 amounts to a force majeure event under a contract, and the specific contractual notice provisions which may be impacted if, for example, the postal service were to stop.
The potential lack of on-site workers and decrease in global manufacturing capability is likely to lead to delays in delivery of supplies, decreased energy production, and ultimately, a volatile/fluctuating oil price. Companies operating in the energy sector should take stock, set up working groups, identify their supply chains and contractual arrangements, identify their exposure to risk, and be ready to adapt to the ever-changing situation.