UK oilfield services sector turnover ‘back from the brink’ after 15% fall in 2016, says new report

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Turnover in the UK oilfield services sector fell 15.5 per cent in 2016 though the sector came “back from the brink” last year, according to a report.

The sector reported a decline in turnover for the second consecutive year, from £35.7bn in 2015 to £30.2bn (down 15.5 per cent) in 2016, the last full year for which figures are available.

There were reductions across each of the supply chain categories – facilities, marine and subsea, reservoirs, support and services and wells – EY’s Review of the UK Oilfield services industry said.

The report said demand, both from the UK Continental Shelf (UKCS) and overseas locations, continued to be affected by the lower oil price restricting capital budgets and discretionary spend, leading to oversupply and intense pricing competition.

Figures for 2017 are also expected to show a decline when they become available, but the outlook for 2018 is more positive.

However the report warns that the industry’s approach to recovery in 2018 could prove critical for long-term success.

Andy Brogan, EY Global Oil & Gas leader, said: “While 2017 is the year that the oil and gas and the OFS sectors came back from the brink, the OFS market is likely to remain challenging for the foreseeable future, and only those who can build and defend competitive advantages are going to deliver the returns their stakeholders expect.”

The majority of UK OFS companies experienced a difficult 2016 with less than 2 per cent achieving growth in excess of £10m, the report said.

However there were companies that grew as a result of acquisitions, growth in overseas activity or diversifying into other sectors.

Export figures show a slight increase in activity with exports as a percentage of turnover from UK OFS companies rising from 40 per cent in 2015 to 41 per cent in 2016.

However, there was an absolute decline of £2bn as a result of the overall contraction in the sector.

Derek Leith, EY partner and head of Oil and Gas Tax, said: “Industry leaders have taken action to make operations as lean and efficient as possible which has helped them ride out this downturn.

“However, cost cutting and headcount reduction cannot continue indefinitely. A shift towards greater innovation in systems, processes and technologies could help drive operational costs down further while also enabling the sector to respond to an increase in activity which appears to be on the horizon.

“The industry is entering a more positive environment where oil price is rising and production is increasing as a result of both improved efficiencies and new fields coming on line, but this cannot give licence for old habits to creep back in.

“Long-term success for the UK oilfield services sector will rely not only on the continued application of greater efficiencies but an active commitment to a sustainable future for the industry.

“UK OFS companies cannot rely on growth in the UK alone to increase revenues and must both internationalise and diversify their operations to ensure long-term survival.

“While it is encouraging to see a rise in export activity it is concerning that access in overseas markets is still very modest.”

PA