THE economic downturn has shaken confidence in Britain’s subsea sector, according to a new study.
Industry body Subsea UK said that, while the sector played a huge role in recovering remaining oil and gas reserves in the UK continental shelf, the decrease in activity and delays on projects were continuing to cause uncertainty and a fall in earnings.
Subsea UK represents more than 200 companies employing 40,000 people in the UK with revenues of around £5billion a year.
Alistair Birnie, Subsea UK’s chief executive, said: “Given the efforts to bring down costs in a mature basin such as the UK continental shelf, subsea developments are critical to sustaining production here and increasingly around the world.”
He said earnings per share for drilling contractors, equipment manufacturers, subsea construction and service companies were holding up better than expected, but this was largely due to historical contract awards and a backlog of work.”
Mr Birnie added: “The continuing delays on projects – a direct result of the downturn – and the impact of the North American slowdown are hitting the sector hard.
“While tendering activity is higher, there is growing evidence of pressure on prices. There is potential for further day rate erosion in drilling, reductions in revenues and margins and subsequently employment across the sector.
“However there are some positives that reflect the growing importance of internationalisation.
“Subsea companies who have been able to deliver services in addition to products, and value-adding activities that are relevant in the bad times as well as good, are proving to be winners.
“Those with a spread of work across the globe rather than just in the UK are maintaining their position. With the nature of oil and gas partnerships changing, companies who nurture relationships with national operating companies will continue to grow.”
The report, commissioned by Subsea UK with support from Scottish Enterprise, was compiled by energy consultant Douglas-Westwood.
Malcolm Webb, chief executive of industry body Oil & Gas UK, said: “Having built on the wealth of subsea technology and expertise developed here over the last few decades of production, the UK is now considered a world leader in subsea engineering. The potential for major growth in exports exists with global demand for these goods and services rising around the world.
“However, the rooting of this high-performing industry in the UK is not guaranteed. If we are to anchor the subsea industry in this country and reap the rewards in terms of employment, exports and technology development for decades to come, we must ensure that the domestic activity is sustained.
“This requires action from both government on tax and regulation and industry on efficiency and cost control.
“With regard to tax, while Oil & Gas UK fully recognises that the government is in a difficult position with regard to public finances now and acknowledges there is very limited scope for reducing the overall tax burden on the oil and gas industry, when the country emerges from recession, the tax rate will need to be reduced to reflect the fundamentals of this mature basin.”
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