An EY report emphasises a difficult period for UK oilfield services as turnovers decline but industry body Oil & Gas UK hopes that collaboration can help inspire the sector to pick up profits
Image: An offshore jack up rig. Photo: courtesy of suwatpo/FreeDigitalPhotos.net.
UK oilfield services have experienced another “tough year” with a third successive decline in annual turnover, according to a report by professional services firm EY.
Between 2015 and 2017 the sector experienced a decline in turnover from £34.8bn to £26.9bn – an annual decline in turnover of 9%.
This resulted in a 2.2% drop in profit margins, which is the largest fall in the sector since 2014.
Derek Leith, EY partner and head of oil and gas tax, said: “While there is a general sense of a gradual recovery in the oil and gas sector, our eighth annual review highlights that 2017 continued to be a tough year, and we expect that trend to continue into 2018.
“Our report shows that turnover of the UK’s oilfield services (OFS) industry declined for a third successive year, albeit the rate of decline reduced, but more importantly the EBITDA margin decline in 2017, dropping by 2.2 percentage points, was the largest since the downturn started in 2014.”
Global OFS companies fared better than their UK counterparts, according to the report, and registered turnover growth of 9.5% with this trend expected to continue until 2020.
However, a decline in the share price index of 45% between January 2018 and December 2018 shows that investors still have concerns over the potential of the sector to mount a quick recovery.
Need for collaboration across UK oilfield services sector
Despite the sobering findings of EY’s annual review, Oil & Gas UK, the representative body of the UK’s offshore oil and gas industry, believes that more collaboration across the industry could help create a more positive future for UK oilfield services.
Oil & Gas UK supply chain director Matt Abraham said: “While this report confirms the pressures felt on the oilfield services sector throughout 2017, it is a timely reminder of the need to remain focused on stewarding a sustainable recovery.
“With increased project approvals, technological advances and improved operational performance, the UK’s oilfield services sector has worked hard on its competitiveness against a challenging global backdrop.
“This hasn’t come without cost to many and indeed pressures remain.”
The industry representatives called on oilfield services companies in the UK to remain focused on Vision 2035 – a long term plan developed by the UK Oil & Gas Authority to create competitive advantage, inspire transformation and drive investment into the UK oil and gas sector.
Mr Abraham added: “Industry isn’t sitting still and while these factors should produce a more positive landscape going forward, we remain relentless in our pursuit of Vision 2035.
“By working to expand supply chain opportunities at home, internationally and into other sectors, the oilfield services sector can strengthen its resilience to volatile global oil markets and identify diverse revenue streams.
“The UK’s oil and gas supply chain has competitive advantage in offering full lifecycle services including exploration, decommissioning and brownfield, with a reputation to match.
“As global spend picks up, there’s a great opportunity to make the most of these readily exportable oilfield services capabilities.”