OTC Comment: Can Houston oil and gas companies benefit from ‘Brexit’
With the Offshore Technology Conference once again heralding the arrival of so many Scottish and United Kingdom businesses to Houston, it is an ideal time to reflect on the impact that Great Britain leaving the European Union might have for Houston companies that deal with them.
Of course, we still do not yet know what deal will be struck between the UK and EU, and whether it may happen at all. The UK and EU recently agreed a 6-month delay to Brexit making the intended date of departure Oct. 31. This buys both sides some negotiating time. More importantly, it allows companies additional time to consider their strategy, something we have been working with our clients to achieve.
And, as with any change in circumstances, there are sure to be challenges and opportunities.
For the moment, there is a total lack of agreement on which tariffs might be applied to goods imported and exported between the UK and the EU, and how that will be resolved is still anyone’s guess.
One area of concern for Houston’s oil and gas services companies that rely on an integrated approach to selling into Europe or sourcing products from Europe is supply route disruption. What affected businesses can do now is work with advisers to assess how their contracts would deal with the impact of such disruption.
Have you thought about your pricing? How might Brexit affect the other party? For new contracts that you are negotiating, the same issues need to be considered.
Another issue that could become a problem for the sector is currency value. If a bad ‘Brexit’ deal severely weakens the British pound, it will make goods from Houston a lot more expensive and slow demand from North Sea operators for their products.
Nevertheless, anyone sitting in Houston looking across the Atlantic should be able to see real growth opportunities too.
The flip side to a weak pound is a strengthened dollar which would reduce the costs of buying British products for operators in the United States that. import skills or equipment from the UK. It would also make it easier for U.S. companies to acquire assets or companies in the UK and, of course, benefit those who enjoy fine Scotch whisky and a round at the best golf courses in the world.
In sectors such as offshore construction and decommissioning, Brexit has the potential to create a more level playing-field in markets currently dominated by big European industrial companies. If you have no business in Europe and the UK, you may also be at an advantage to competitors who could suffer disruption to supply lines that run through European ports such as Rotterdam.
Immigration for skilled U.S. staff may become easier as the UK looks to fill supply gaps caused by a restriction of movement of workers from the EU.
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And the prospect of a new free trade agreement between the US and the UK could open further opportunities and make business between the countries even more attractive than it already is.
However it shakes out, any slowdown in trade between the UK and Europe necessarily leaves gaps to be filled, and there are strong reasons to suspect that the US — and Houston in particular — is very well placed to benefit. The contingent of UK businesses that visit the energy capital of the world for OTC each year is evidence of the strong link that already exist.
That means opportunities for those willing to invest in the UK - and U.S. businesses may get even more used to welcoming their British counterparts to H-town.
Alasdair Freemen is a partner in the Scottish law firm Burness Paull.