Report on reduced subsea earnings

A report by Subsea UK claims that delays in activities to recover the remaining oil-and-gas reserves have led to a reduction in earnings in the sector.

The organisation, which was set up to champion Britain’s subsea sector, claims that subsea developments are a cheaper and more environmentally friendly way to tap new oil-and-gas reserves.

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. Indeed, 43 per cent of UK production is now accounted for by subsea wells and subsea goods and services are exported to the value of £2bn per year.’

Subsea UK’s report reveals that the recession has weakened confidence in the sector, with increasing uncertainty across the supply chain. While tendering activity continues to remain high, the study also notes a growing evidence of pressure on prices.

Birnie said: ‘Earnings per share across drilling contractors, equipment manufacturers, subsea construction and service companies are holding up better than expected, but this is largely due to historical contract awards and a backlog of work. The continuing delays on projects, a direct result of the downturn, and the impact of the North American slowdown are hitting the sector hard.’

The study reveals a number of positive results that reflect the increasing importance of globalisation with companies that have operations across the globe maintaining their current position. Nevertheless, the organisation has urged the government to provide incentives that will encourage domestic activity and secure the future of the sector.

Malcolm Webb, chief executive of Oil & Gas UK, said: ‘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.’