Oil & Gas UK Economic Report 2014

i) Reservoirs

Currency (£ Million)

2008

2009

2010

2011 1,097 11.3%

2012 1,204 11.5%

Turnover

706

861

852

EBITDA Margin

21.7%

14.2%

7.7%

This is the smallest segment of the supply chain, employing some 5,000 people and contributing 3.4 per cent of the total turnover in 2012. Spending on this segment is partly dependent on present and future oil and gas prices and the ability of customers to secure finance for their projects. Turnover increased by £0.5 billion between 2008 and 2012 (CAGR 14 per cent), with a significant upturn in both 2011 and 2012

as the industry moves to exploit ever more complex geological structures, heightening the need for better seismic analysis. In addition, companies are also reappraising many existing fields using 3D seismic to obtain better quality information. EBITDA margins, which were adversely affected by the blow-out of the Macondo well in the Gulf of Mexico during 2010, are also starting to return to those before the disaster.

ii) Wells

Currency (£ Million)

2008 6,065 13.4%

2009 5,764 13.4%

2010 5,783 12.4%

2011 6,531 9.4%

2012 7,556 11.2%

Turnover

EBITDA Margin

Wells accounted for 21 per cent of the supply chain’s total turnover in 2012, with over 23,000 people employed. Turnover increased by £1.5 billion between 2008 and 2012 (CAGR six per cent), with a significant upturn in 2011 and 2012 because of increasedUKCS activity by drilling contractors (resulting from the current high oil price and recent tax incentives from the government to encourage investment) and an increase in export activity. EBITDA margins declined from 2009 to 2011 as a result of continued pricing pressure from customers and increased costs, but there was

a two per cent recovery in EBITDA margins during 2012 due to increased rig rates. Furthermore, as mentioned, operating costs have more than doubled in the last five years and many fields could become uncommercial in the event of a significant price downturn, which would lead to reduced production. One of the main factors that will contribute to the longevity of the UKCS is improved production efficiency (see Section 5) and companies within the wells segment will be key contributors towards achieving such improvements.

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ECONOMIC REPORT 2014