Business Outlook 2018

BUSINESS OUTLOOK 2018

25% up on 2016

4. Supply Chain Outlook

3. Market Outlook

4. Supply Chain Outl

In Summary T he UK oil and gas services sector has faced some of its toughest times as revenues fell by more than £10 billion from 2014-16. However, latest data show that EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) fell by a comparatively modest £1.7 billion on average over the same period. This highlights the excellent, but very challenging, work by companies to adapt to the difficult environment by managing their cost base. Innovations in digital and technology, diversification into other related sectors, increased activity through M&A, and other structural and organisational changes have been vital in helping supply chain companies sustain their businesses in the difficult climate. Despite these improvements, free cash flow for supply chain companies remains a major concern, with longer payment terms regularly imposed by their customers and some of the costs of restructure reported as exceptional capital items (therefore not captured within EBITDA). As expenditure and activity levels on the UKCS are now expected to pick up, share price data indicate that confidence is returning to the supply chain. The average share price of a representative group of listed oil and gas service companies has been on an upward trend since mid-2016 and has now almost recovered back to 2013 levels. The decline in the number of jobs supported by the industry slowed last year reaching 4 per cent, which compares with a total drop of 35 per cent since the downturn. This suggests that the largest workforce reductions might be behind us, although some companies are still reducing their headcount. The challenge of replacing lost skills and competencies is beginning to feature again in companies’ risk profiles, particularly those with expertise in new project development, subsea activity, rig and well services, and maintenance and turnaround work. Supply chain revenues are expected to stabilise in 2018 Around Brent oil price averaged $54.2/bbl in 2017 25% up on 2016 £ although free cash flow remains a major concern 3. Market Outlook 4. Supply Chain Outlook Supply chain revenues are expected to stabilise in 2018 The average share price of supply chain companies active on t e UKCS increased by Brent oil price averaged $54.2/bbl in 2017 25% up on 2016 Although the Brent spot price briefly surpassed $70/bbl in January 2018, future contracts for delivery beyond 2019 remain at sub-$60/bbl 8% in 2017 £ although free cash flow remains a major concern

Supply chain revenues are expected to stabilise in 2018 £ although free cash flow remains a major concern Although the Brent spot price briefly surpassed $70/bbl in January 2018, future contracts for delivery beyond 2019 remain at sub-$60/bbl

4. Supply Chain Outlook

5. Exploration &Prod The NBP day-ahead gas price averaged 45 p/th in 2017

Around The average share price of supply chain companies active on the UKCS increased by 30% higher than 2016 of post-tax cash flow was generated on the UKCS in 2017, more than in any year since 2011 8% in 2017 At least 12 new developments – worth around £5 billion of capital investment – are expected to be sanctioned in 2018 62% of supply chain companies surveyed by Oil & Gas UK have a more positive outlook for 2018

5. Exploration &Production Outlook

of post-tax cash flow was generated on the UKCS in 2017, more than in any year since 2011

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