Economic Report 2016 - Oil & Gas UK

ECONOMIC REPORT 2016

Facilities

Tier 2: Main Contractors and Consultants

Tier 3: Products and Services, Components, Sub-Contractors and Sub-Suppliers Machinery/plant design and manufacture Engineering support contractors Specialist engineering services Specialist steels and tubulars Inspection services

Engineering, operation, maintenance and decommissioning contractors Engineering consultants Structure and topside design and fabrication

The facilities segment is the largest of the UK supply chain, representing one third of total supply chain revenues in 2014. Given its focus on supporting production, it has had the most robust performance of all sub-sectors with revenues increasing by around 7 per cent in 2015. However, the capital expenditure-led engineering, procurement and construction companies have been under more pressure than those geared towards operations and maintenance and are likely to have experienced poorer financial performance. Production performed well in 2015 and continues to increase during 2016 (see section 5.4 for more information), but there remains concern around future activity levels should production decline occur as a result of the lack of current upstream investment. Another key driver for the segment is decommissioning where spend is likely to rise from £1 billion in 2014 to over £2 billion in 2018, by which time over 50 fields will either be approaching or undertaking decommissioning. This is viewed by some as a natural hedge should the low oil price environment endure for longer than anticipated.

Figure 39: UK Facilities Segment Financial Results and Forecasts

Currency £ million Revenue % Change

2011

2012

2013

2014

2015E

2016E

2017E

10,089

11,475

13,125

13,135

14,100

10,709

10,905

14% 985

14%

0%

7%

(24%)

2%

EBITDA EBITDA margin

814

1,105

822

794

643

627

8%

9%

8%

6%

6%

6%

6%

Source: EY

The facilities segment has had the most robust performance of all sub-sectors with revenues increasing by around 7 per cent in 2015.

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