EY - UK OILFIELD SERVICES INDUSTRY REVIEW 2019 ( Derek Leith )

What are the main headlines for the UK OFS report?

So this is our eight annual OFS report for the UK sector, regrettably I guess we’re still on a downward trend with the figures so the 2017 figures show that turnover in the sector in the UK declined by 9% in the year but I think more worryingly, and possibly surprising to me, is we saw a margin reduction of 25%. So the average margin for the sector has gone down from from 8% to 6%, so of course the key question is, if we fast forward to today, is that still the position that some of these offering the service companies are in or not? Which is quite a tricky question to answer.

Operators are now publishing strong balance sheets and profits, do you see evidence of this being passed on to the OFS sector?

I think we see little evidence in the UK at the moment of there been a ‘passing on’ of the recovery that the upstream companies have experienced. I don't think that's unusual you would expect there to be a time lag; I mean it's the kind of old adage that when things get difficult you feel the impact immediately when things start to pick up there's a lag. So you would hope over time it would be passed on but I think there's still a lot of anecdotal evidence in the market that people that are pitching for work today are still under enormous cost pressure and I think that's because the operators are very, very keen to stop the kind of price escalation that we saw in 2011 to 2013. But of course, they also have to realize that if they turn the screw in supply chain too much they will not the choice in market and the competition that they desire and ultimately prices will get out of control. So there is a very fine balance.

What would your message be to the CEO’s of the companies in the OFS sector?

Yes, I think that's a vital question and it must be a question pressing in the minds of these people as to how they react to the market and where they perceive the market going in the future. I think the strong message is we're not going to return to the days that we had in 2011-2013 where everybody was busy and you could almost charge what you wanted. I think we are in a period of time where the oil price volatility has made the upstream companies very, very cautious and as a result of that the supply chain companies need to find new ways of working; they need to innovate, they need to adopt technology, they need to have a new paradigm in terms of how they approach the sector to be successful. But I think there is an opportunity to do that, it's just you need to in some way dispense with the behaviors of 2/3 years ago.

What are the key observations for the international markets?

So I think if you look at the global picture the outlook is quite positive, but it is not even throughout the globe. So if you look at North America for instance the expectation is of a flat market in 2019. You know, the activity has slowed down last year; fracking has slowed down, there are lots of bottlenecks in the industry so we don't expect North America to be a strong market in 2019. Middle East, Asia are, if you want, the ‘hot spots’ for the next year or so. NOC and IOC are who invested over the past few years and now there are a lot of projects which are starting to come to market to be FID'd and to start being developed and therefore we expect quite a lot of activity especially in the Middle East.