North Sea Oilfield Services Companies: A Look Ahead
In the latest January 2018 report from EY, Review of the UK oilfield services industry, the overarching tone is one of ‘cautious optimism.’ EY’s analysis reviews recent industry data of the UK’s registered oilfield services (OFS) companies across five subsectors: reservoirs, wells, facilities, marine & subsea and services & support. In this post, we look at the key takeaways from the 43-page report, highlighting the trends in the North Sea and potential implications for employment and future growth.
Outlook for the UK continental shelf
While Brent prices have surpassed $60 per bbl, a price not seen since 2015, confidence in the global economy remains moderate. Production in the mature UK Continental Shelf continues to increase driven by efficiency and new fields. In 2017, we saw first oil at BP’s Schiehallion area, Enquest’s Kraken development, and Total’s Edradour and Glenlivet development. A few other developments are also underway.
As for operating costs, we have seen a fall from $26 per boe in 2013 to $14.70 per boe in 2017. This trend is expected to welcome greater investment in the UK. It is already happening as nearly 100 applications were received in the 30th offshore licensing round. Furthermore, in efforts to make the UKCS more competitive, the Oil & Gas Technology Centre (OGTC) opened in February 2017 with £180 million in support of several investments in technology and digital projects. Lastly, decommissioning spend is expected to increase. This is an opportunity for the UK’s supply chain to establish itself as best in class in dealing with mature fields in a cost-effective manner.
Trends among North Sea oilfield services companies
For OFS companies, the focus remains on cost discipline. The pressure to innovate and to build momentum for digital technology development and big data analytics will continue to play a vital role in cost reduction, efficiency, and competitiveness. Consolidation among OFS companies is expected to continue with the number of transactions to rise. Large-scale acquisitions and mergers will allow companies to protect market share and add capabilities. Diversification will be the key to counteract the lack of significant growth in the UK OFS market in the next few years. Many companies will look to increase export activity and diversify into adjacent sectors.
Key trends in the North Sea OFS supply chain
2016 was a difficult year with 15% reduction in turnover across all categories. Some companies grew from acquisitions, overseas activity, and/or diversification but that accounted for less than 2% of the companies in the survey. The report highlights some key findings and trends across the five sub-sectors:
Reservoirs: The supply chain continues to be impacted by pricing pressure and insufficient demand. In 2017, the Oil & Gas Authority (OGA) released 12,000 miles of broadband seismic findings and over 14,000 miles of reprocessed legacy data. This could lead to increased exploration activity and revitalise the segment.
Wells: Drilling activity has been declining in the UKCS and capital expenditure is forecast to reduce by more than 50%. However, at least eight new potential projects being considered for approval in 2018 accounting for up to £5bn.
Facilities: Given the maturity of the UKCS basin, companies can no longer delay or cancel non-essential maintenance as in recent history. As such, they will have to allocate capital to maintenance spend for the ageing infrastructure to remain operational.
Marine & Subsea: While there are new projects forecasted for 2018 and beyond, expenditure is much smaller in comparison to recent developments coming online. Given the forecast decline in subsea capital investment, export markets will increase in importance.
Support & Services: The past few years have seen a sharp decline in contract roles, but recovery is expected in 2018. Cost efficiency has led to reduced headcounts and remuneration levels, but technology and demographics look to disrupt the whole industry. Digital advances are creating a step change in how and where work gets done. Millennials are soon to comprise much of the workforce and bring with them positive changing attitudes toward digital technology, collaboration, and accountability. The competition for new skills and capabilities among the workforce is fierce.
Andy Brogan, EY Global Oil & Gas Leader notes, “The OFS market is likely to remain challenging for the foreseeable future and only those who can build and defend competitive advantages are going to deliver the returns their stakeholders’ expect.”
While we are back from the brink of 2017, pressures continue among North Sea oilfield services companies and the whole industry. Across the supply chain sectors, the traditional avenues for growth and employment are on the decline. Companies will have to look to novel innovation, sustainability, consolidation, capital, and diversification to remain competitive and grow in the years to come.
To discuss oilfield services trends and the potential impact on your recruitment requirements, get in touch with Louise Wood:
+44 (0)1224 261926 firstname.lastname@example.org
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