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UK well services sector worth $3bn.

INDUSTRY body Oil and Gas UK (OGUK) says the UK's well services sector saw gross revenue generated from UK oil and gas business in 2011 grow dramatically by 28 per cent to $2.8 billion (Au1.7 billion).

The number of highly-skilled jobs supported by the sector across the UK also rose by 10 per cent to 13,000, including 2,000 graduate engineers and 1,500 technicians, OGUK says.

Alongside the increase in gross revenue and employment, the sector's UK earnings before interest, taxes, depreciation and amortisation (Ebitda) rose by 23 per cent to $437 million (Au273 million) in 2011. Investment in future capacity also increased by 20 per cent to $178 million (Au111 million), half of which was in capital equipment, the other half in new technology.

The sector also faced challenges amid growing global demand for its services, according to the report. This was in recruiting, training and retaining skilled staff but also from shortages in equipment. The end result was an increase in operating costs, says OGUK supply chain manager Ken Cruickshank.

"The UK's oil and gas supply chain is a force to be reckoned with, supporting thousands of highly-skilled British jobs and the development of technology and expertise across the country. This latest report illustrates how the Au57 billion wave of spending on UK oil and gas projects in 2011-13 that was highlighted in our activity survey is boosting activity and jobs in the well services business. The sector's robust performance in a difficult economic climate across the UK is impressive," he says.

Step change in safety, the Industry Mutual Hold Harmless Agreement, OGUK, Pilot Share Fair and the Supply Chain Code of Practice were cited by respondents as initiatives which are effective in encouraging safety and efficient business.

In 2012, gross revenue is forecast to rise by 6 per cent and Ebitda by 30 per cent. However, equipment shortages, reluctance among clients to trial new technologies and challenges in recruiting, training and retaining skilled personnel whose experience and expertise, honed in the UK, is in increasing demand in the lucrative global market, were raised as challenges of future growth.

Cruickshank concludes: "With strong spending on UK oil and gas projects forecast to continue, the well services sector has the potential to grow even further and of course, we are yet to see the effects of the measures announced in the 2012 Budget to stimulate investment in UK oil and gas projects. OGUK will work with its members to ensure the challenges of growth are addressed so that the well services sector can maximise its contribution to British employment and technology."

Some of the main conclusions from the report are:

* Despite a drop in overall drilling activity in the UKCS, 2011 revenue increased significantly above the levels that were forecast the previous year and the sector remains optimistic that an increase will continue through 2012.

* Interestingly, however, the percentage Ebitda to gross revenue continued to drop.

* The level of capital investment also rose during 2011 and is projected to continue increasing in 2012 with the proportion invested in new technology (as opposed to capital equipment) remaining around 50 per cent.

* The number of personnel employed in the United Kingdom Continental Shelf (UKCS) sector rose by nearly 10 per cent during the year with the demand for graduate engineers and technicians projected to continue.

* Well services contractors believe the benefits of introducing new and effective technologies could be more highly valued by the client community.

* The fiscal and tax regime in the industry during 2011 was highlighted as a barrier to maximising the recovery of UKCS reserves.

* Optimism in the well services contractors sector has increased to the highest since 2005. Reasons for this trend include projections of increasing activity, improvements in the availability of capital and the progression of major developments.

* Major concerns in the well services community continue to be the availability and retention of skilled personnel and equipment in the UKCS together with a rising cost base and uncertainty about the stability of the UK fiscal and tax regimes.

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Publication:Oil & Gas News
Article Type:Survey
Date:Jul 23, 2012
Words:696
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