Economic Report 2016 - Oil & Gas UK

ECONOMIC REPORT 2016

Figure 35: UK Reservoir Segment Financial Results and Forecasts

Currency £ million Revenue % Change

2011

2012

2013

2014

2015E

2016E

2017E

1,092

1,219

1,355

1,244

878

643

680

12% 171

11% 245

(8%) 145

(29%)

(27%)

6% 77

EBITDA EBITDA margin

162

99

63

15%

14%

18%

12%

11%

10%

11%

Source: EY

The majority of reservoir-focused companies have been restructuring operations, removing costs and rebalancing headcounts to counter the significantly reduced activity over the last two years. This has been particularly observed among consultancies that are people-based and where the cost base is largely variable. Another important factor has been the changing relationship between companies and their contracted employees, increasingly moving to remuneration based solely on voyage time rather than being paid retainers for periods spent off vessel. The changing balance between contracted work and more multi-client work has partly driven the continued erosion of EBITDA margin. A stark shift to speculative multi-client work has impacted contractors’ bottom line and those companies with extensive multi-client libraries will be best placed to rework existing data for sale to clients. Even prior to 2014, the UKCS posed challenges for reservoir-focused companies, as the number of E&A wells drilled had been falling sharply since 2008. As such, companies in this part of the supply chain have consistently generated more export revenues than any other segment, particularly as global spending on seismic was on an upward trend until the fall in price, as shown by Figure 36 opposite. However, the over-riding impact of a lower oil price environment has meant that global seismic spend has now fallen dramatically, cancelling out any natural hedging from revenues generated internationally.

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