UK OFS Sees Glowing 2019 and Setback for 2020

The UK’s oilfield services sector (OFS) saw increases in turnover, EBITDA margin, exports, and employee numbers in 2019, according to the latest EY UK Energy Services overview.

The report, which incorporated the tenth annual review of the UK OFS sector and analysed 1,141 OFS companies looking at 2019 trading performance, revealed that turnover increased by $1.3 billion (GBP 1 billion) from 2018 to $39 billion (GBP 28 billion), exports were up two percent to 46 percent, the EBITDA margin increased by 1.2 percentage points to 6.9 percent, and employee numbers were up six percent to 109,262.

EY outlined that the report showed a gradual recovery in UK OFS, which it said started in 2018 and was set back by the events of 2020. While 2019 was characterised by a number of new fields coming into production, 2020 was characterised by the deferral of development projects, EY said in a statement sent to Rigzone.

EY added that there is likely to be a further decrease in production in 2021 due to a combination of lower levels of investment, project delays, and the smaller scale of developments given the maturity of the basin. The company highlighted, however, the confidence in a higher oil price may see an increase in investment spend.

The report also shows that the sector’s future will be shaped by diversification and decarbonization, with a move to reduce emissions. Environmental, social, and governance themes are increasingly at the forefront for shareholders and investors, EY noted. The company revealed that a digital transition is also accelerating.

“Last year, we were cautiously optimistic that 2020 would be a stronger year for OFS - 2018 had seen the first increase in revenues for UK OFS in three years, and the general sentiment was that trend would continue with an opportunity for margin improvement in 2020,” Derek Leith, EY’s Global Oil & Gas Tax Leader, said in a company statement.

“It’s a salient lesson that unexpected events can radically derail expectations,” Leith added.

Celine Delacroix, EY’s global energy services and equipment leader, said, “in many ways, last year was transformational for the sector, and the pandemic accelerated the crisis the OFS sector finds itself in”.

“Global exploration and production spend fell by a quarter in 2020, forcing OFS companies to adapt, reposition their portfolios in a shrinking market, and accelerate their digital journeys,” Delacroix added.

“The restructuring of the industry is unfolding and 2021 will continue to see significant cost reduction measures and rationalisation of capacity through asset retirements, bankruptcies, and consolidation,” the EY representative went on to say.

To contact the author, email andreas.exarheas@rigzone.com