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Shell country head warns UK against no-deal Brexit

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Shell UK head hails "revitalized" strategy

London — Shell on Tuesday joined calls by the oil and natural gas industry for the UK to avoid a "no-deal" Brexit, with Shell country head Sinead Lynch warning that added costs in the form of barriers to trade and movement of talent would be "completely the wrong direction" to go in.

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Industry group Oil & Gas UK warned Tuesday that uncertainty surrounding UK withdrawal from the EU, due on March 29, 2019, risked damaging confidence and impeding the industry's recovery.

Lynch, speaking at a gathering in London, voiced confidence in Shell's "revitalized" UK strategy, highlighting a series of investment decisions it has made this year, and saying Brexit was not an "existential threat" for the company. But she acknowledged concerns.

For Shell "there's no existential threat around Brexit. There is however aggregation of additional costs, administration, complexity, which is completely the wrong direction when you think about what we are trying to do in the industry," Lynch said, referring to successful cost-cutting efforts to make the North Sea competitive.

"We are very much in favor of a deal that provides frictionless trade, movement of talents, continued access in whatever form people judge appropriate to the internal energy market, and indeed membership of, or continuation, a linkage, to the EU Emissions Trading System."

In its annual economic report Oil & Gas UK said there were opportunities and risks attached to Brexit, saying a deal that provided minimal tariffs, but freedom for the UK to negotiate trade deals, could bring GBP100 million/year ($130 million) in cost savings, but reversion to World Trade Organization rules could add GBP 500million of trading costs annually.

"There is concern that the current uncertainty around the UK's future trading relationship with the EU could result in a negative impact on business and investor confidence," Oil & Gas UK said.

"Additional costs such as those envisioned in a possible 'hard Brexit' scenario would be potentially detrimental to the ongoing international competitiveness of the UK continental shelf."

The group's lead business adviser, Harry Thorne, added: "We have a lot of technical expertize that comes from abroad. We have a lot of imports and support and services which comes from abroad. A no-deal Brexit could have the potential to impact the fluidity" of operations.

EXPLORATION OPPORTUNITY

Lynch played down worries about a lack of future resources available for development in the North Sea, highlighting Shell's participation in a recent licensing round, and saying new technology could enable development of "stranded resources" far from existing infrastructure.

"We have got a new revitalized UK upstream growth strategy. We've done that on the back of confidence in the basin, confidence in the prospectivity... We wouldn't be there if we didn't see the prospectivity," she said.

Oil & Gas UK's economic report warned that despite a stabilization in output levels of oil and gas, drilling activity has continued to drop in the North Sea, with just four exploration wells 'spudded' in the first eight months of 2018, and drilling of development wells reduced to 41 in the first half, down from 47 in the same period last year.

Older wells were likely to be decommissioned at a greater rate than new ones are brought on stream, with knock-on effects for the drilling supply chain, it said.

--Nick Coleman, nick.coleman@spglobal.com

--Edited by Jonathan Fox, jonathan.fox@spglobal.com