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EY says resilience will be broken

Oilfield firms poised for ‘brutal’ fall in income

Barry FraserOilfield companies are expected to see their resistance to the downturn broken with a significant decline in turnover and profits, according to the latest industry analysis by EY.

EY’s Review of the UK oilfield services industry showed that the sector proved resilient in 2014.

Despite growing at the slowest rate in five years, still recorded a modest 3% growth with overall turnover of £41bn and constant profit margins.

However, growth has given way to decline. Revenues for the top 100 global OFS companies are predicted to slide by18% in 2015 with a further 5% fall this year.

Barry Fraser, EY executive director in corporate finance for the oil and gas sector, says: “The UK OFS sector is in a very tough place.  The cyclical nature of the oil price is something the industry has experienced before, but this time the effect is more brutal and the need for change is greater.

“The majority of small and mid-sized UK OFS companies are experiencing significantly greater declines than the top 100 global OFS companies and 2016 is about survival for many.

“While the sector will be looking for signs of long-term price stability before committing to new projects, companies need to make fundamental changes to their operations to ensure they are fit for the future.”

Mr Fraser says consolidation in this environment will be inevitable. According to previous research released by EY, despite OFS companies cutting costs by an average of 20-30%, up to one third of the 1500 UK registered companies may disappear from the market.

“Companies that proactively look out for opportunities to undertake strategic transactions that enable them to become leaner, stronger and more diverse will emerge as the winners in this new market,” he says.

“The ability of the UK OFS sector to adapt and seize opportunities will be integral to the longevity of the industry and Aberdeen’s reputation as a centre of excellence. Developing products, services and delivery methods that provide efficiency improvements are crucial and need to be adopted by customers across the market.”

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