Turnover slides in UK oilfield services but outlook for 2018 looking brighter

● Industry’s approach to recovery could prove critical for long-term success

The UK oilfield services sector suffered a double-digit fall in turnover in 2016, but the outlook for 2018 is more positive, a report today suggests.

The sector reported a decline in turnover for the second consecutive year, down by 15.5 per cent from £35.7 billion in 2015 to £30.2bn 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 – according to EY’S latest review of the UK oilfield services industry.

The report noted that demand, both from the UK Continental Shelf (UKCS) and overseas locations, continued to be impacted by the lower oil price restricting capital budgets and discretionary spend, leading to oversup- ply and intense pricing competition. The price of a barrel of crude has rallied in recent months but remains well below 2014 highs of more than $100.

Figures for the oilfield services sector in 2017 are also expected to reveal a decline when they become available, but the outlook for 2018 is more upbeat.

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

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 the 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.”

Jon Clark, EY’S head of oil and gas transaction advisory services, said mergers and acquisitions had helped many firms to diversify by adding new capabilities but he noted that consolidation was set to have “a wider impact for the industry as a whole”.

Export figures showed a marginal increase in activity during 2016, the report added.