Business Outlook 2018
Performance has varied both across and within different sectors of the supply chain 3 . Capital available for investment in exploration activity has been constrained worldwide, resulting in increased competition for work in the reservoirs sector. The global and mobile nature of this sector means it has the highest exports as a percentage of total turnover, although this has fallen from a high of 64 per cent in 2011 to 53 per cent in 2016. The wells sector has also experienced intense competition due to low levels of drilling activity. It saw an overall drop in turnover of 20 per cent in 2016 – the largest of all the supply chain sectors. EBITDA margins appear to have held up better, but they do not consider financing costs and asset depreciation, which are significant for this sector in particular. There are tentative signs that rig demand may begin to increase gently through 2018, particularly for well intervention and plugging and abandonment campaigns, which should aid recovery. The facilities sector has historically had the lowest margins, but more consistent work due to the regularity of multi-year contracts, particularly in operations and maintenance. This has persisted through the downturn, although average margins dropped from 6.1 per cent in 2014 to 4.5 per cent in 2016 as many contracts were renegotiated. Parts of the sector have been targeting growth overseas, both within and outside of the oil and gas industry, helping turnover return to 2011 levels. Deferral, cancellation or phasing of capital expenditure have been the driving factors behind the decline in turnover in marine and subsea of 27 per cent between 2014 and 2016. However, exports have not been as badly affected in this area due to the highly technical and specialised nature of products and services. The well-earned reputation of the UK market in marine and subsea activity has played a key role in limiting revenue decline. This sector was the only one to achieve an increase in its average EBITDA margin in 2016, which has recovered to 2013 levels. The support and services sector comprises a wide range of businesses, many of which specialise in discretionary activities that often suffer from budget cuts during a downturn, such as consultancy services, IT and infrastructure upgrades, recruitment and non-essential training. This led to a fall in revenue of around one-third and a 2.2 percentage point fall in average EBITDA margin between 2014 and 2016, more than any other sector. In addition, it is harder for support services to diversify geographically due to the localised nature of the work.
3 All data relating to different sectors of the supply chain are taken from the EY Oilfield Services Report available at http://bit.ly/EYOFS18
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