Economic Report 2016 - Oil & Gas UK

Supply Chain • Revenues across the supply chain are forecast to fall by around 21 per cent this year, taking market revenue below £30 billion for the first time since 2010. This follows a contraction of around 10 per cent in 2015.

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• Supply chain EBITDA 3 is forecast to have fallen by almost half over the last two years, reflecting reduced activity levels and the cost of reorganisation.

• Companies specialising in wells or reservoir-based activities appear to have suffered the most, with revenues expected to decline, on average, by 53 per cent and 48 per cent respectively from 2014 to 2016.

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• The facilities segment, representing around one-third of the total supply chain, has seenmore robust performance to date with revenues increasing by around 7 per cent in 2015. However, concerns over future activity mean revenues in this segment are forecast to contract by almost one-quarter this year. • Revenues in the marine and subsea segment are thought to have fallen by 14 per cent in 2015 with a further decrease of 11 per cent expected in 2016 to £8.4 billion. However, EBITDA margins are likely to remain higher than other areas of the supply chain at 12 to 13 per cent due to a number of ongoing large-scale subsea projects, such as Schiehallion, Greater Laggan and Kraken. • Revenues in the support and services segment of the supply chain, comprising a wide range of businesses, are forecast to contract by 13 per cent in 2016, similar to the 14 per cent fall last year. Employment

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• Across the UK, around 330,000 jobs are currently supported by the offshore oil and gas industry: o 34,000 direct employees 4

o 151,500 indirect employees 5 o 144,900 induced employees 6

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• This represents a 27 per cent reduction from peak employment of around 450,000 in 2014.

Upstream Production Taxes

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• Over £330 billion has been paid in corporate taxes since production on the UKCS began.

• Production taxes fell to just beneath zero in 2015-16 7 , reflecting a lack of profitability and increasing decommissioning expenditure.

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3 Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA). 4 Those employed by companies operating in the extraction of oil and gas and associated services. 5 Employment as a result of supply chain effects caused by oil and gas sector activity. For these companies,

extraction of oil and gas and associated services will be one part of a wider business. 6 Employment supported by the redistribution of income from the oil and gas sector. 7 See http://bit.ly/2ckwOyL

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