Engineering news
It is vital that the oilfield services (OFS) industry makes a permanent shift in strategy from short-term survival to long-term success as the sector begins to show signs of recovery from the toughest year on record, according to a report by EY.
The Review of the UK oilfield services industry report, reveals that the overall annual turnover of UK OFS declined for the first time since the EY review started in 2008, from £40.6 billion in 2014 to £35.7 billion in 2015, a fall of 12%. However, despite the year-on-year decrease the 2015 figure still represents a significant contribution to the UK economy and is the third highest annual turnover for the sector in the history of the report.
EY’s data also shows that 2015 was the first time that the turnover of each of the OFS supply chain categories (reservoirs, wells, facilities, marine and subsea and support and services) fell in one year.
Although the data has shown a decline in activity, the analysis indicates that the stablisation of the oil price in the US$50-60 region and the early signs of new investment provide grounds for cautious optimism.
Derek Leith, EY partner and head of oil and gas tax, said: “With the worst of the downturn over and signs of recovery becoming more prevalent, the UK oil and gas sector has reached tipping point with the supply chain playing a pivotal role. As such, the future viability of the oilfield services industry will be largely determined by the decisions and actions taken by leaders in 2017.
“It is essential that the hard-won benefits achieved by oilfield services companies as a result of the unforgiving low oil price environment, such as greater efficiencies and innovative approaches, are sustained and not abandoned as the oil price starts to recover.”
Leith added: “It may be that the current oil price will prevail for the foreseeable future, so the oilfield services industry must push beyond cost reduction to higher margin sustainable business. This needs to be characterised by new commercial relationships, new technology and innovation.”
The report highlights the opportunities for significant export growth through internationalisation targeting the right growth markets, the development of the Oil & Gas Technology Centre and an increase in demand for decommissioning services.
Leith continued: “Decommissioning offers the UK oilfield services industry an excellent opportunity to grow a significant line of business with huge export potential. The UK supply chain must offer high quality, cost-effective goods and services if they are to succeed in the fiercely competitive global market.
“Significant co-ordination, collaboration and support will be needed in order to help deliver an optimum decommissioning solution for the UKCS and to take advantage of an important export opportunity in the years to come.
“However, we need to start to view decommissioning in a different way. It needs to be integrated with ongoing oilfield operations and development activity as part of an integrated approach to maximising economic recovery and delivering value.”
The report says that consolidations and strategic alliances look set to become an increasing trend in 2017, particularly in high-cost areas of development such as marine and subsea.
Industry-wide consolidation is likely to be driven by larger players with healthy balance sheets seeking strategic acquisitions in order to: expand their integrated services via new technology, increase their international footprint or reduce risk by diversifying into other markets. Financial stress is also likely to force consolidation.
The report also says there are positive signs that 2017 will attract more, but still modest levels, of capital expenditure.