Economic Report 2018

5.3 Supply Chain Competitiveness

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The capability and strength of the UK oil and gas supply chain is recognised globally and is a key factor in helping to boost the attractiveness of the UKCS as an investment proposition.

Supply Chain Performance and Optimism UK supply chain companies have endured an extremely challenging period in recent years as E&P companies have reduced expenditure and activity levels. This has resulted in considerable reductions in revenue and margins and has stretched cash flow within organisations. Companies have had to transform their business and operating models in pursuit of new efficiencies to remain competitive and preserve cash flow, with some looking at alternative means of protecting their business, such as Chapter 11 bankruptcy for US-based firms or opportunities within mergers and acquisitions (M&A). Share prices are a good indicator of the performance of, and confidence levels in, supply chain companies. Figure 26 outlines the share price performance of a cross-section of listed supply chain companies with a strong presence on the UKCS, across a number of supply chain sub-sectors. Markets have responded positively to the improved commodity prices in the first half of 2018, however, it is important to note that share prices still lag those seen in 2013 and 2014, with the well service sector averaging only around half the levels of four years ago.

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3

4

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Figure 26: Share Price Performance of a Cross-Section of Supply Chain Companies

180

6

Facilites

Marine & Subsea

160

Support & Services

Well Services

140

7

120

100

8

80

60

Share Price Index

9

40

20

10

0

January 2013 January 2014 January 2015 January 2016 January 2017 January 2018

Source: Oil & Gas UK, Yahoo Finance

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Companies across the supply chain are continuing to experience challenging market conditions, with low margins and uncertainties around the pipeline of new activity. Many companies report tendering at cost price, or even negative margins, in order to keep resources in use. A notable example of this would be drillers who prefer to keep rigs active rather than stacking and incurring the significant costs associated with re-activation when a new contract is awarded.

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