Oil & Gas UK Economic Report 2014

iii) Facilities

1

Currency (£ Million)

2008 8,576 6.9%

2009 8,930

2010 8,913 8.2%

2011

2012

Turnover

10,140

11,781

EBITDA Margin

7.4%

7.9%

8.5%

2

This is the largest segment, accounting for a third of the supply chain’s total turnover in 2012 and employing nearly 62,000 people. UK companies are typically more involved in either an engineering role, construction of topside equipment including modules, or the operations and maintenance of the facilities. The largest fabrication works, on the other hand, are often carried out overseas, in lower cost locations. Turnover increased by £3.2 billion between 2008and2012 (CAGReight per cent) becauseof increased capital expenditure and brownfield activity (asset integrity work, upgrades and maintenance) on the UKCS. EBITDA margins did not fluctuate significantly between 2009

and 2012, as many of the major companies operate under multi-year contracts, enabling them to manage their cost base. Although this also results in lower margins on their products and services, restricting the overall margin achieved. The drive to achieve MER UK should see continued investment in new fields and substantial modifications and upgrades of installations to extend the productive lives of existing fields. In addition, in the post-Macondo environment, oilfield services companies with offerings related to asset integrity and a good safety record will have a competitive advantage in the international arena.

3

4

5

6

iv) Marine and Subsea

7

Currency (£ Million)

2008 4,860 15.4%

2009 5,173 12.0%

2010 5,654 9.4%

2011 7,585 10.5%

2012 8,786 11.8%

Turnover

EBITDA Margin

8

Marine and subsea is the second largest segment, contributing a quarter of the total supply chain turnover in 2012. Around theworld, the UK is widely regarded as the leader in subsea technology, stemming from more than 30 years of application in this country. The importance of subsea technology in maximising economic recovery of oil and gas reserves continues to grow both here and internationally. Subsea technology offers significant advantages over fixed production platforms and allows oil and gas to be extracted more cost effectively, particularly from more difficult environments. Turnover increased by

£3.9 billion, more than any other supply chain category, between 2008 and 2012 (CAGR 16 per cent) due to increased capital expenditure which has led to an upturn in activity, particularly on the UKCS. EBITDA margins declined in 2009 and 2010 following difficult economic and trading conditions and delays to various projects. There was a modest recovery in 2011 and 2012, mainly from higher usage of vessels because of improved market conditions and successful project execution. The fundamentals of subsea technologies are compelling, with the development of large, complex projects requiring ground-breaking technologies (see Section 6 for two examples on the UKCS).

85

ECONOMIC REPORT 2014