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UK oilfield services companies see turnover and margin declines

Publication Date: 07 Feb 2019 - By ReachX Team By ReachX Team
Actionable
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Equity Fundamental Equity EU ex-UK UK Energy

The UK oilfield services (OFS) sector is in the midst of tough times, according to a new industry report.

In its latest report on the subject, global consultancy EY said sector players reported a third consecutive annual decline in turnover, from £34.8bn in 2015 to £26.9bn in 2017, with export revenues from 2015–17 for the companies declining £3.4bn. However, as a percentage of revenues, export revenues remains steady at around 40%. 

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More specifically in terms of 2017-18 fiscal year, EY said sector turnover declined by 9% and EBITDA margin fell by 2.2 percentage points; the largest fall in margin since the sector downturn in 2014. Reductions across each of the supply chain categories – facilities, marine and subsea, reservoirs, support and services and wells - continued. 

More generally, the turnover for Global OFS companies in 2017 increased with further forecast growth in 2018 to 2020, however the PHLX oil service sector share price index declined 45% between January and December 2018, reflecting investors’ concerns about the speed of the recovery in the sector and margin pressures.

Derek Leith, EY Partner and Head of Oil and Gas Tax, said it is not unusual for the recovery in the OFS sector to lag behind the recovery in the exploration and production (E&P) sector. 

“However, the continued concerns regarding global economic growth, the demand for crude, and the ability for OPEC and others to achieve demand/supply balance, has ensured that a very strong focus on cost control and capital spend has maintained a downward pressure on OFS margin.”

Leith added that while the OFS sector has “most probably” come through the bottom of the cycle in 2017 there is clearly no let-up in the pressure on costs. 

Capital investment into the UKCS should remain at broadly the same level as 2017 despite an increase in project approvals/sanctions – there were at least 17 new developments approved in 2018, compared to around seven in 2017. 

“Any uplift in capital spend that would historically have resulted from an increase in new developments has not occurred because of lower development costs and project delivery efficiency,” Leith concluded.

 

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