Oilfield services revenues rise amid shoots of recovery after downturn

The oilfield services (OFS) sector is showing green shoots of recovery after three years of declining turnover, according to the latest industry review.

EY said it is an opportune time for the UK OFS to lead transition to greener energy. Picture: PA Wire
EY said it is an opportune time for the UK OFS to lead transition to greener energy. Picture: PA Wire

Revenues at UK OFS companies grew by 2.3 per cent in 2018 – the most recent year for which figures are available – to end three consecutive years of contraction.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) edged 0.1 per cent higher to 6.5 per cent, as pricing pressure continued and a large number of lower margin projects secured during the oil and gas downturn were delivered.

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The data comes from EY’s review of the UK oilfield services industry, which claimed that the modest uptick indicates the market is slowly recovering, with particular optimism from companies “with broad geographic footprints, technological capabilities or who have successfully started to diversify”.

Five years of reduced upstream spend, lower commodity prices and margin erosion has impacted the OFS sector globally, EY said.

However, the accounting giant found that the 70 largest listed global OFS companies are forecasting turnover to rise 1 per cent in 2019, followed by a jump of around 5 per cent growth in 2020 and 2021.

'Focus on renewables'

Derek Leith, EY partner and global oil and gas tax leader, said: “Overcapacity in parts of the supply chain has meant that companies are, in some instances, still chasing prices down where competition is most fierce and for almost all sub-sectors margin improvement has proved elusive.

“Against this backdrop and prevailing headwinds, the UK OFS sector needs to continue to innovate and digitalise, integrate service offerings, exploit niche opportunities, and take advantage of diversification as part of the energy transition.

“Many companies already have a significant focus on the renewables market, are developing into broader energy and industrial service providers with less focus on purely oil and gas and have started to create international opportunities for themselves which will support their recovery.”

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According to EY, OFS companies are facing increasing pressure to transition to greener energies and should use their technology and experience in renewables to take a lead role in battling the climate crisis.

Celine Delacroix, EY’s global oilfield services leader, added: “The time has never been more opportune to drive transformational changes to business models and ways of operating, when after years of subdued activity levels, several indicators point towards an improving market outlook.

“In order to capitalise on the emerging opportunities and to win back investors’ confidence, OFS companies will have to bring their house in order and create long-term sustainable business models.”