Economic Report 2018

ECONOMIC REPORT 2018

Despite the continued challenging conditions, there is an air of improving sentiment across the supply chain, as outlined in Business Outlook 2018 . Almost two-thirds of contractor companies reported that the outlook for 2018 was better than 2017, with a similar level expecting an increase in revenues this year. Improved sentiment has also been reported by Scottish Enterprise and SDI in their Survey of International Activity in the Oil and Gas Sector 2016/17 , with 84 per cent of companies reporting that they are optimistic around their future prospects. 24 An increased number of companies were also reported to be expecting growth this year, both in the UK and internationally. Supply Chain Sector Margins A consequence of reduced expenditure and activity levels has been a reduction in margins across the supply chain. Figure 27, below, outlines the EBITDA 25 margins across supply chain sectors and is based on a representative sample of companies within each sector.

Figure 27: UK Supply Chain Sector Margins

60%

50%

40%

nigraM ADTIBE rotceS niahC ylppuS

30%

20%

10%

0%

2014

2015

2016

2017

Reservoirs

Wells Services

-10%

Drilling Tool & Commodities

Rigs & Drilling Contractors Facilities Engineering Topsides & Processing

Subsea Services

EPCI

-20%

Maintenance Services Transport & Logistics

Operational & Professional Services

Source: Rystad Energy

In general, there have been reductions within each supply chain sector, with variations seen depending on the nature of each business. The fact that, overall, most sectors have been able to maintain a positive EBITDA margin despite the challenges being faced by industry demonstrates that supply chain companies have been able to achieve cost reductions and implement efficiencies. However, sub-sectors dominated by capital investment, such as wells, have seen EBITDA margins fall by more than 50 per cent since 2015, while the Transport and Logistics sector has fallen into a negative EBITDA margin.

24 www.scottish-enterprise-mediacentre.com/news/scotlands-oil-and-gas-sector-sustains-strong- international-reputation#downloads 25 Earnings before interest, taxes, depreciation, and amortization.

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