North Sea supply firms suffer business decline

The UK’s North Sea service and supply companies have seen business drop sharply over the last year, according to a report published yesterday.

Well over half (63%) the respondents to the Royal Bank of Scotland’s survey said volumes were lower than a year ago, and more than a third reported declines of more than 20%.

`Business conditions remain difficult for the North East’s oil and gas service and supply companies,’ the report concludes. `The rapid and substantial increase in oil prices has not [yet] filtered through in the form of new business.’

The depressed volumes of business have translated into lower prices, with 55% of the companies reporting declines and over a quarter facing price reductions of more than 10%.

There was scepticism that the industry could achieve its target of cutting the cost of producing a barrel of oil by 33% by 2002. Six out of 10 of the 82 companies that responded to the survey considered this to be unlikely.

About 35% of the doubters believed costs could not be cut any further, another 20% thought the targets were simply too ambitious, and 18% said margins were already too tight to accommodate the desired reductions.

Looking forward, however, a small majority said they expected an improvement in business conditions throughout 2000 as a whole and in 2001.

The RBS said the most encouraging aspect of the survey was the evidence of increased export activity among the UK-based companies, with four out of five currently selling goods or services overseas.

`Since UK cost reduction measures imply less spending on [local] inputs by operators, the long-term health of the supply sector will depend on diversification through exports,’ the report said.

The leading export markets for the UK-based offshore industry suppliers are Norway (to which 35% sell), West and Southern Africa (32%), Central and South America (29%), and the former Soviet Union (28%).