Oil & Gas UK Economic Report 2014

There has been year-on-year growth in turnover between 2008 and 2012, with a significant increase of around £5 billion in both 2011 and 2012 (see Figure 39). This growth has been driven by the rise in activity on the UKCS and the continued increase in exports from these UK businesses. In recent years, the government has introduced a number of measures to encourage investment in the UKCS, which it believes will extend the shelf’s productive life. These include tax allowances to extract oil and gas from more complex reservoirs and guarantees of tax relief on future decommissioning costs. However, EBITDA margins declined from 11.3 per cent in 2008 to 9.1 per cent in 2011 (see also Figure 39), mainly because of pricing pressures from customers, salary increases due to a shortage of skilled personnel and unrealised supply chain savings. Therewas an improvement in margins in 2012, but customers, particularly the larger E&P operators, are calling for further cost reductions.

Between 2008 and 2012, the number of employees increased by more than 20,000. In addition, average salaries increased from £42,000 in 2008 to £47,000 in 2012 (a compound annual growth rate (CAGR) of three per cent), reflecting a shortage of skilled labour at home and that many organisations around the world are competing for the same pool of talent. One of the main challenges facing the industry is the availability of skilled and experienced workers. In addition, the increasing prevalence of overseas national content laws further heightens the difficulties, as regulation may prevent countries with sufficient skilled personnel from providing talent to those countries with skills shortages. Attracting new talent to join the industry is essential, with many schemes already in place to target skilled personnel from outside the sector, as well as encouraging school leavers and graduates to join.

Figure 39: Supply Chain Turnover and EBITDA from 2008 to 2012

40

12%

Turnover (Left Hand Scale) EBITDA Margin (Right Hand Scale)

35

10%

30

8%

25

20

6%

15

4%

EBITDA Margin %

Turnover (£ Billion)

10

2%

5

0

0%

2009

2010

2011

2012

2008

Source: EY, Oil & Gas UK

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ECONOMIC REPORT 2014