52 / 84
ECONOMIC REPORT
2016
52
Wells
Tier 2:
Main Contractors and Consultants
Tier 3:
Products and Services, Components,
Sub-Contractors and Sub-Suppliers
Well services contractors
Drilling contractors
Well engineering consultants
Drilling and well equipment design and manufacture
Laboratory services
Companies operating within the wells segment are also among those most exposed to the lower oil price.
The majority are focused on the drilling market and activity in this area has continued to fall through 2015 and
into the first half of this year. It appears that revenue fell below £6 billion in 2015 with a further decline to below
£4 billion (37 per cent) anticipated in 2016, leading to an expected overall market contraction of more than
50 per cent over the past two years.
Figure 37: UK Wells Segment Financial Results and Forecasts
Currency
£ million
2011
2012
2013
2014
2015E
2016E
2017E
Revenue
6,360
7,298
7,776
8,020
5,937
3,764
4,389
% Change
15%
7%
3%
(26%)
(37%)
17%
EBITDA
635
876
943
1,202
781
260
436
EBITDA
margin
10%
12%
12%
15%
13%
7%
10%
Source: EY
Since 2015, significant cost-cutting measures have been under way to reduce
the negative impact of falling activity on margins. Drilling contractors with
heavy asset pools are increasingly looking at restructuring their businesses
as covenants and cash-flow come under increasing scrutiny and the value of
assets face further impairment.
Such has been the decline in activity and oversupply of rigs to the market that
many fourth, fifth and sixth generation rigs coming off contract are facing
immediate stacking. There are limited prospects for their redeployment
in a market that already has newer, higher specification rigs available at
increasingly attractive long-term rates as companies struggle to find business.
Contractors are cutting day-rates for rigs to break-even levels or below
to keep them active. Break-even day rates for new build 7G floaters are
expected to be in the region of $300,000 per day in 2018 compared with
rates of $450,000 per day for high specification semi-submersible rigs in
early 2014.
Wells contractors
are cutting
day-rates for rigs
to break-even
levels or below to
keep them active.