Well services providers prepare for profit drop

Oonagh Werngren
Oonagh Werngren, Oil & Gas UK's operations director

North Sea well services contractors expect revenues and investment to drop by about a quarter this year as balance sheets start to reflect the full severity of the downturn in the sector, a new report said.

Optimism in the oil and gas industry has been dented by a drop in crude prices that started in the second half of last year and brought the sector’s underlying problems, such as spiralling costs, to the fore.

Demand for contractors’ services was strong at the beginning of 2014, but waned as oil prices tumbled, according to Oil & Gas UK’s (OGUK) latest well services contractors report, published yesterday

Staffing levels, capital investment, drilling and rig activity also suffered over the course of last year, the industry body said in its report, which is aimed at highlighting trends in the sector.

The report indicated that UK well services firms employed 12,894 people in 2014, a 16% decline year-on-year, while the number of graduate engineers in the sector fell by 75%.

The figures are slightly skewed, however, because the list of companies that took part in this year’s survey is not exactly the same as last year’s. With that discrepancy factored in, employment went down by just 3% on a like-for-like basis.

In terms of income, the oil price fall came too late to have a significant impact before the turn of the year, with gross revenues going up 1% to £1.97billion in 2014, the report said.

High levels of investment in the UK oil and gas sector in 2013 also propped up contractors well into the following year, softening the coming blow of lower crude prices.

But the report’s seven respondents, who represent about 85% of the sector, think activity levels will decline further in 2015, dragging down cash flows and capital investment in the process.

The companies that were surveyed, including Baker Hughes, Halliburton and Schlumberger, predict a near 23% drop in revenues in 2015.

Sadly for the sector, revenue forecasts for the last three years have tended to be very close to the mark.

Capital investment, which came to £90million last year, is expected to fall 25% in 2015.

Commenting on the report, OGUK operations director Oonagh Werngren, said: “Throughout the first half of 2014, it was clear that well services contractors continued to benefit from the high level of investment in the UK continental shelf (UKCS) which occurred in 2013.

“In the latter half of 2014, however, a number of companies reported a slow-down in the demand for their services and expect this trend to continue in 2015, with respondents predicting that the oil price fall will have a negative impact on drilling activity.”