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UK offshore oil and gas supply chain worth £35 billion

30 April 2014

Oil & Gas UK released a report in April showing that, based on 2012 figures, the economic contribution of the UK upstream oil and gas supply chain is a £35 billion industry.  Turnover increased by £11.4 billion between 2008 and 2012, with an increase of 290 companies in the sector over that period.

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This growth was driven by the rise in capital investment on the UK Continental Shelf (UKCS), which stood at £11.4 billion in 2012, in real terms, the highest for three decades. This pattern continued in 2013 with record investment of £14.4 billion, while Oil & Gas UK’s 2014 Activity Survey forecasts around a further £13 billion of capital investment in 2014.

The report - The contribution of the UK upstream oil and gas supply chain - was carried out by professional services firm EY (formerly known as Ernst & Young), examined over 3,000 companies actively involved in the supply chain and focused on the 1,585 of those companies identified as UK-registered, with at least 50%of turnover generated in the oil and gas sector and with 2012 accounts filed with Companies House.

The export market is responsible for 42% of the £35 billion turnover for the upstream supply chain, a percentage which has remained fairly constant over the last five years.
The report claims the sector’s supply chain now employs some 200,000 people in total, a figure that increased by over 21,000 between 2008 and 2012.

Oil & Gas UK Business Development Director Stephen Marcos Jones pointed to the regional concentration of the companies involved. “Just over half of the companies featured in this project are based outside Scotland and we are seeing very strong regional centres, in particular in the East of England, the North East and London, which act as hubs for fabrication, servicing the southern North Sea and commerce respectively.”

Another report - The UK upstream oil and gas supply chain - market intelligence - provides additional information on the size and composition of three selected sub-sectors: engineering, operations, maintenance and decommissioning contractors (EOMD); drilling and well equipment design and manufacture (DWEDM) and marine and subsea contractors and equipment (MSCE).

In detail, the report finds that UK demand for EOMD services will be driven by decommissioning and international opportunities and limited greenfield and brownfield late life development and operations. The report also predicts that the cost of drilling will rise in the UK, resulting in minimal growth in the footage drilled, with future DWEDM demand being driven by development wells rather than exploration and appraisal wells. The report also notes that one particular area of demand is Enhanced Oil Recovery (EOR) despite only two major EOR programmes currently being underway. According to the report, the international market for DWEDM products is projected to rise significantly over the next five to ten years.

Finally, the report claims that the type of activity expected to drive the majority of future MCSE UK offshore demand is linked to late life development and operations, noting that new independent E&P companies will extend production life, with decommissioning and international demand predicted to grow in the future.

The market intelligence report notes that the UK is a recognised world leader in offshore oil and gas developments, with the expertise developed providing a competitive advantage for UK companies competing internationally. Despite this fact, the report identifies a number of common sub-sector threats and constraints – the most prevalent of which was attracting and retaining experienced personnel.

Alex Milward, Oil & Gas Advisory Partner at EY, said:

“The reports outline the significant opportunities facing the UK oilfield services industry, but identify certain barriers that must be overcome if growth is to be sustained in the sector. Crucially, the attractiveness of the UK as a place to do business must be maximised. Steps must also be taken to realise domestic and international demand for oilfield services and to promote the industry to new talent.”

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