Many oil and gas SMEs may 'disappear from market' – EY
The UK’s small and mid-sized oilfield services (OFS) industry is braced for a significant decline in profits this year, EY has warned.
EY said that up to a third of the 1,500 OFS SMEs in the UK’s oil and gas industry may disappear from the market completely, despite cost-cutting efforts.
The downturn in turnover and profits is due to the ongoing impact of low oil prices.
EY said that while the cyclical nature of the oil price has been experienced before, the effect is now “more brutal and the need for change is greater”.
EY’s Review of the UK oilfield services industry showed that while the sector recorded a modest growth of three per cent in 2014 and £41bn in turnover, revenues are predicted to decline.
Globally, revenues for the top 100 OFS companies are predicted to fall by 17 per cent in 2015, with a further 5 per cent decline expected in 2016.
Barry Fraser, EY executive director in corporate finance for the oil and gas sector, said that consolidation in the sector is “inevitable” and that 2016 is about “survival for many”.
He said: “While the sector will be looking for signs of long-term price stability before committing to new projects, companies need to make fundamental changes to their operations to ensure they are fit for the future.”
It is now "crucial" that the UK’s OFS companies develop products, services and delivery methods that provide efficiency improvements to the oil and gas sector, he said.
He added: “Companies that proactively look out for opportunities to undertake strategic transactions that enable them to become leaner, stronger and more diverse will emerge as the winners in this new market.”