Oilfield Services Cos Must Innovate: EY

UK oilfield service (OFS) companies survived last year with a 2.3% increase in turnover but the pressure on prices is limiting real growth, according to a report by business consultancy EY February 5. For that, they must embrace the opportunities offered by the energy transition, it said.

It said the 70 largest listed global OFS companies have forecast turnover growth to be 1% in 2019, followed by circa 5% growth in 2020 and 2021 but most are still struggling to recover from the 2014 slump. “Expanding product portfolio, geographic footprint and adding new technologies to existing offerings will drive mergers and acquisitions,” it said.

Its Review of the UK Oilfield services industry saw a pre-tax (Ebitda) margin rise from 5.4% in 2017 to 6.5% in 2018, as pricing pressure continued, and a large number of lower margin projects secured during the downturn were delivered.

Globally, the OFS sector has been affected by five years of reduced upstream spend, lower commodity prices and margin erosion as companies competed to maintain activity during continued oversupply. Capex growth was only 2-3% in 2019 and the expectation is of a similar growth rate this year.

EY expects turnover growth to be 1% in 2019, followed by 5% growth in 2020 and 2021 but warns that over-capacity in parts of the supply chain has meant that some companies are still chasing prices down where competition is most fierce.

To offset this, 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, it said.

Investors, banks, employees and communities are pressuring the oil and gas sector to transition to greener energies. With its heavy technology content, its wealth of talent and experience in renewables, the report says that the OFS industry can play a key role in solving some of the sustainability challenges the world faces.

The production and use of oil and gas, helping develop carbon capture and hydrogen technologies, and expanding into alternative energy sources, such as wind, are all areas the UK is well placed to lead the world.

“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. There is space for more to be done but the UK should be well placed to capture the benefits of this transition,” says EY.