Don't think we know yet. Based on earlier leaks, the thought is that Unreal Engine 5 is involved somehow, but there is uncertainty about whether or not it is full-on in UE5 or if UE5 is just being used as a rendering layer. If Bethesda's own engine is still used as the core of the game, we don't know if that means simply reworking the original Oblivion code, or if they updated everything to the latest version used for Starfield.
What we can assume is that, even if the original engine is used, there will need to be a good deal of work done to update it regardless, since it is still a 32-bit application that would need to be rewritten for proper 64-bit support. And a lot of the game mechanics, physics, movement, etc. would need to be updated to work with the UE5 rendering layer if that is indeed how it's working.