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6.1 Overview
Although the fall in price and turbulence in the upstream sector began in mid-2014, the impact on the supply chain
is being felt most sharply this year as existing contracts expire and future orders are scarce.
Figure 34 below reveals an estimated overall reduction in revenue across the supply chain of 10 per cent in 2015,
with a further fall of 21 per cent forecast this year, taking the market to below £30 billion for the first time
since 2010.
Figure 34: UK Supply Chain Financials by Sub-Sector
Currency
£ million
2011
2012
2013
2014
2015E
2016E
2017E
Reservoirs
1,092
1,219
1,355
1,244
878
643
680
Wells
6,360
7,298
7,776
8,020
5,937
3,764
4,389
Facilities
10,089
11,475
13,125
13,135
14,100
10,709
10,905
Marine and
Subsea
8,420
8,993
10,275
10,991
9,500
8,424
7,125
Support and
Services
5,578
6,297
7,254
7,554
6,462
5,639
5,722
Total
31,539
35,282
39,785
40,944
36,877
29,179
28,822
% Change
12%
13%
3%
(10%)
(21%)
(1%)
EBITDA
2,870
3,534
4,065
4,196
3,312
2,209
2,190
EBITDA
margin
9%
10%
10%
10%
9%
8%
8%
Source: EY
Further analysis by sub-sector reveals that certain areas of the supply chain have been impacted more quickly
and severely than others. Areas exposed to significant falls in capital expenditure and exploration activity, namely
reservoirs, wells, and marine and subsea, have seen revenues and profits erode at a greater rate. However, the
facilities segment and some support and services companies were bolstered by the UKCS’ strong production
performance in 2015.
Indeed, facilities is the only sub-sector of the supply chain estimated to have experienced year-on-year growth in
2015 in terms of revenue, albeit with significant margin decline. This performance is dominated, however, by large
international companies and so may not be reflective of the state of smaller UK-focused companies. Small and
mid-sized companies will likely have been impacted by the downturn to a greater extent due to less diversity in
their revenue streams and customer base, as well as a more limited ability to reduce costs. The indicated reduction
in this area of the supply chain in 2016 appears more broadly consistent with the market. Excluding revenue from
the facilities segment, the UK supply chain contracted by as much as 18 per cent in 2015.
Figure 34 also highlights the sharp drop in EBITDA during 2015, which, unlike revenue, has been experienced across
all segments of the supply chain. Non-essential expenditure and capital projects on the UKCS have frequently been
cancelled or delayed amid significant pricing pressure, with reduced activity levels and the costs of reorganisation