OTC.10: Report reveals 2010 outlook better than feared for UK industry sector

The high levels of uncertainty which affected the British petroleum industry sector in 2009 have abated somewhat, according to a report initiated by Subsea UK.

Offshore staff

HOUSTON -- The high levels of uncertainty which affected the British petroleum industry sector in 2009 have abated somewhat, according to a report initiated by Subsea UK. However, while it’s likely that 2010 will be more positive than previously thought this time last year, challenges remain and the market likely will continue flat into 2011.

The Market Confidence Report, prepared by Douglas Westwood for Subsea UK, finds that the outlook for the remainder of this year is not as negative as a similar report issued at this time last year, the growth curve is not set to rise in the near future, signaling continued tough times ahead.

The report was introduced at a press conference Monday at OTC 2010.

Subsea UK, a self-sustaining body that champions the UK subsea supply chain, represents more than 200 member companies, acting as a focal point for all stakeholders to promote the UK subsea industry both at home and abroad.

Subsea UK commissioned a series of reports in 2009 to give companies a view of the market as against a backdrop of a turbulent global economy. The 2010 report compares actual quarterly earnings per share against previous forecasts for 21 companies in the oil service sector with exposure to international subsea markets. This allowed changes in expectations to be tracked, building a picture of each company’s performance both on a quarterly and annual basis.

The first three quarterly reports in 2009 highlighted a collective increase in the market capitalization of the monitored companies. This higher trend continued into the fourth quarter. According to the most current report, the collective market capitalization had risen by 74%, from the end of February 2009; by the end of March 2010, it stood at $251 billion.

Equipment manufacturers outperformed market expectations during the period. Oilfield services companies had a more difficult year, with earnings per share down by 35.7%, and while subsea and drilling companies’ EPS are down, they are not significantly down from previous forecasts.

According to the report, some companies reported a reduction in turnover, but an increase in profits. Such companies, it observed, obviously have used the downturn to take a strategic review of the business and drive efficiency to position them to be more competitive for the long haul.

But according to Alistair Birnie, SubseaUK chief executive, even some of those companies, particularly the smaller ones, will be unable to exploit the growth if banks do not support them.

“Some smaller, more nimble businesses have continued to do relatively better this past year by working ‘niche’ markets to their advantage,” said Birnie. “However, bank borrowing continues to be a major concern and some companies are struggling due to a lack of working capital. This is stifling growth when companies need to focus hard to secure new orders. If not corrected quickly, it undoubtedly will impact the industry’s competitiveness when the main growth phase re-emerges.”

The British subsea sector is well-placed to exploit future growth, he said, since the UK oil and gas industry relies more on subsea than other world offshore regions.

5/3/2010

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