BUSINESS ACTIVITY REVIEW (2017) - Subsea UK · The sixth Subsea UK review of the subsea sector ... the impact of the global oil and gas ... contractors of manufacturers within the

BUSINESS ACTIVITY REVIEW (2017)

Statistics and AnalysisThe sixth Subsea UK review of the subsea sector, reporting on manufacturing services, employment and exports. This report examines the current state of the industry as it stabilises following the oil price downturn in 2014.

Subsea Exports Revenue

Business Confidence

Renewables Market

Future Outlook

Neil Gordon, CEO,Subsea UK

Welcome to the sixth Subsea UK Business Activity Review, conducted to gauge the current temperature of the subsea sector.

This report, compiled by Subsea UK’s market intelligence analysts, seeks to give an indication of the impact of the global oil and gas downturn on subsea companies.

ABOUT SUBSEA UK Subsea UK, formed by government and industry in 2004, is a self-sustaining

industry body which champions the sector at home and abroad through support and

initiatives that help its 300 plus member companies grow, diversify and develop new

technology. Subsea UK is the voice of the subsea sector.

BUSINESS CONFIDENCERATING *

INDUSTRY OUTPUT COMPARED TO 2013 **

ABOUT THIS REVIEW

This review quantifies the output of the UK’s subsea sector for the last fiscal year, 2016, and employment, both direct and indirect. It also seeks to measure the importance of markets outwith oil and gas, e.g. offshore renewables as well as other geographic locations to the UK subsea sector. In exploring exports, the review also identifies the markets of most importance for British subsea companies now and in the next few years.

INTRODUCTION

OVERVIEW

Since 2010, output in the UK subsea sector grew year on year, reaching £8.9billion in 2013, when the last review was conducted.

This 2017 review reveals that both output and numbers of employees have declined since 2013. However, the importance of offshore renewables to the UK subsea sector has significantly increased.

The total value of 2017 UK subsea output, including exports, is £7.5billion. The subsea sector supports around 45,000 jobs in the UK, compared to 53,000 in 2013.

Exports account for over half (55%) of annual revenues, while sales in offshore renewables have risen from £770million in 2013 to £1.3bilion today.

84%73%

* based on 2013 T1 and SME projected export growth forecasts; ** based on 2013 industry output value (£8.9bn in 2013 vs £7.5bn in 2017)

UK SUBSEA REVENUES

METHODOLOGY OVERVIEW

Based on the results of this snapshot survey, supplemented by information from Companies House, the total value of UK subsea output, as represented by sales to operators plus exports is £7,545,311,073. This total output is down from £8.9billion in 2013.

Much of the output is generated by a small number of Tier 1 contractors and manufacturers (21).

The total output was calculated based on survey responses along with Companies House data for organisations who chose not to respond. A company’s contribution to UK output is considered to be equal to its sales directly to UK-based energy companies plus total subsea exports.

The total output value of the UK subsea industry cannot be calculated by simply adding the subsea related revenue from each subsea company as this would result in double-counting of products & services within the supply chain. Instead the output of the subsea industry is generated from:

METHODOLOGY OVERVIEW

Subsea UK’s membership, which was the survey base for this activity review, makes up around 90% of the whole subsea sector.

Subsea UK used data from the survey, alongside information from Companies House to generate all figures from all 21 Tier 1 contractors with subsea related revenue.

The turnover and exports of non-participating SMEs was estimated using averages and extrapolations of the data provided by participating SMEs.

In 2013, Subsea UK estimated there were around 800 companies operating in subsea across the country from the north-east of Scotland to the south-east of England. Around 20% of those have merged or been acquired, gone into administration, or retreated from subsea operations.

Based on the industry now having an estimated 641 subsea companies, Subsea UK used a formula of 620 SMEs plus 21 Tier 1 companies. The actual figures were used from the Tier 1 companies and the SME figures were used to “scale up” the industry results.

UK SUBSEA REVENUES

• Direct sales to oil and gas operators or renewable companies domestically or abroad• Exports to non-UK based contractors of manufacturers within the subsea suppy chain

UK REVENUES

COMPANIES BY REGION

Using the same methodology, the value for UK exports of subsea-related goods and services totals £4,163,552,683. This accounts for over half (55%) of total annual output.

This figure is slightly down from £4.3bn in 2013.

UK EXPORTS REVENUES

UK RENEWABLES REVENUES

Respondents were asked to provide their total revenues which relate to activities in renewable energy. This total has risen dramatically from £770 million in the last survey to £1,304,931,264 in 2017 with a major share relating to activities in offshore wind.

A total of 641 companies were identified throughout the UK as providing subsea-related goods and services. The geographic distribution of these companies is shown below. Although nearly 54% of these are located in the North-east of Scotland, significant numbers are distributed throughout the country.

COMPANIES BY REGION

0 10 20 30 40 50 60

East of EnglandNorth East England

North East ScotlandNorth West England

Rest of ScotlandSouth East

South WestWales

West MidlandsYorkshire

Count of Area

Count of Area

GLOBAL EXPORTS

SUBSEA UKNEWS THE MAGAZINE FROM SUBSEA UK WWW.SUBSEAUK.COM JUNE 2014

IN THIS ISSUEIn-depth: Interview with Bibby Offshore

Subsea News andEvents Worldwide

Highlighting New Technologies and Innovation

ACTIVITY & EMPLOYEES

While some respondents offer a range of services, their core business activities can be broken down into the disciplines shown.

Manufacturing continues to play a large role in UK subsea activity, closely followed by services including engineering, specialist vessels, diving, remote intervention and survey.

0 5 10 15 20 25 30 35 40

Consulting

Manufacturing

Multidisciplinary

Recruitment

Services

Supplier

Training

Respondents

Disc

iplin

e

Count of Primary Focus

Primary Focus

Count of Primary Focus

NUMBER OF EMPLOYEES

• 13,180 employed as Tier 1 Staff

• 2,256 employed as Tier 1 Contractors

• 24,106 employed as SME Staff

• 5,491 employed as SME Contractors

From the survey results and interviews with industry, we have estimated the total number of employees at 45,033. This is down from 53,000 three years ago. This number has been broken down as follows:

The material impact of the oil price drop and subsequent prolonged downturn globally has therefore cost the sector around 8,000 jobs.

SUBSEA CORE BUSINESS ACTIVITY

EXPORT MARKETSEXPORT MARKETS BY REGION

Respondents were asked to provide their largest export markets in terms of sales. The responses from Tier 1 reveal that the largest markets are Scandinavia, West Africa and the Gulf of Mexico This remains largely unchanged from previous surveys.

0

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Tier 1 - Current Export Markets

Australasia (i.e. Australia ) Gulf of Mexico (i.e. USA or Mexico) West Africa (i.e. Angola, Nigeria) Scandinavia (i.e. Norway)

Caspian Region (i.e. Azerbaijan, Russia) Middle East (i.e. UAE) Central Asia (i.e. India, China) North Africa (i.e. Egypt, Tunisia)

North America (i.e. Canada) East Africa (i.e. Mozambique) South East Asia (i.e. Malaysia, Indonesia, Singapore) South America (i.e. Brazil)

TIER 1 CURRENT EXPORT MARKETS

05

1015

6%

13%

12%

12%1%13%

9%

3%

9%

1%

19%

2%

SME Current Export Markets

Australasia (i.e. Australia ) Gulf of Mexico (i.e. USA or Mexico)

West Africa (i.e. Angola, Nigeria) Scandinavia (i.e. Norway)

Caspian Region (i.e. Azerbaijan, Russia) Middle East (i.e. UAE)

Central Asia (i.e. India, China) North Africa (i.e. Egypt, Tunisia)

North America (i.e. Canada) East Africa (i.e. Mozambique)

South East Asia (i.e. Malaysia, Indonesia, Singapore) South America (i.e. Brazil)

SME CURRENT EXPORT MARKETS

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UK FUTURE EXPORT MARKETS

Respondents were asked which markets they believed would be key in the future. For Tier 1 companies, Scandinavia continues to be a top export market, with West Africa also key. However, the Caspian and the Middle-east will become increasingly significant locations, closely followed by central and south-east Asia.

TIER 1 FUTURE TARGET EXPORT MARKETS

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5%

Tier 1 Future Target Export Markets

Australasia (i.e. Australia ) Gulf of Mexico (i.e. USA or Mexico) West Africa (i.e. Angola, Nigeria)

Scandinavia (i.e. Norway) Caspian Region (i.e. Azerbaijan, Russia) Middle East (i.e. UAE)

Central Asia (i.e. India, China) North Africa (i.e. Egypt, Tunisia) North America (i.e. Canada)

East Africa (i.e. Mozambique) South East Asia (i.e. Malaysia, Indonesia, Singapore) South America (i.e. Brazil)

SME FUTURE EXPORT MARKETS

SME respondents in contrast are focused on South-east Asia. The Gulf of Mexico and the Middle-east will continue to be key markets for export activity with Central Asia increasing in focus.

35

SME Top3 REgions - Future

Chart Title

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6%

14%

12%

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4%

SME Future Target Export Markets





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UK FUTURE SUBSEA REVENUE

TIER 1 FUTURE REVENUE (3 YEARS)

Respondents were asked about their growth projections, by estimating what they anticipated revenues to be by 2020.

SME FUTURE REVENUE (3 YEARS)

66

3831

19

Tier 1 Future Revenue (3 Years)

Stay the same Decrease 10-20% Increase < 10% Increase 10-20% Increase > 20%

19

33

6

1818

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SME Future Revenue (3 Years)

Stay the same Decrease < 10% Decrease 10-20% Decrease > 20%

Increase < 10% Increase 10-20% Increase > 20%

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UK FUTURE EXPORT REVENUE

TIER 1 FUTURE EXPORTS (3 YEARS)

Respondents were asked about their export growth projections, estimating what they anticipated export revenues to be by 2020.

SME FUTURE EXPORTS (3 YEARS)

213

7

2733

20

Tier 1 Future Exports (3 Years)


23

41

7

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SME Future Exports (3 Years)



213

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2733

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UK FUTURE RENEWABLES REVENUE

TIER 1 FUTURE RENEWABLES REVENUE (3 YEARS)

Respondents were asked about growth in the renewables market, by anticipating revenues directly attributable to renewables in the next three years.

63% of Tier 1 companies expect to see growth in renewables, with a quarter anticipating revenues in renewables to increase by more than 20%.

SME FUTURE RENEWABLES REVENUE (3 YEARS)

37

25

13

25

Tier 1 Renewables Future Revenue (3 Years)

Stay the same Increase < 10% Increase 10-20% Increase > 20%

Around half of SMEs expect revenues in renewables to increase. With 43% anticipating that there will be no change and 7% expecting revenues in renewables to decrease over the next three years.

43

3419

17

14

SME Renewables Future Revenue (3 Years)

Stay the same Decrease < 10% Decrease 10-20%


CONCLUSION

CONCLUSION

METHODOLOGY FORMULAE

From this snapshot survey, it is clear that the oil price collapse and subsequent global downturn (which resulted in the deferral or cancelation of major subsea projects, most notably in deepwater) has had a material impact on subsea revenues and employment.

Annual output from the subsea sector has dropped from £8.9bilion to £7.5billion and around 8,000 jobs have been lost.

However, it would appear that the subsea industry has fared better than other sectors in oil and gas, largely as a result of export sales holding up and diversification into renewables, where sales have dramatically increased from £770million to £1.3billion.

Exports still account for over half of all UK subsea output (55%) which underlines the economic significance of the subsea industry to UK plc.

With global expenditure estimates for subsea vessel operations and hardware over the next five years of around $141billion, the UK can still claim to be a world-leader with just under a third of that annualised, global market share.

METHODOLOGY FOR VALUING SUBSEA SUPPLY OUTPUT

Based on the responses to the online questionnaire, estimates of the total UK revenue from subsea-related operations, exports, and offshore

renewables for each participating company were calculated as follows:

• UK Subsea Revenue (£) = [Total UK Revenue] x [% of UK Revenue that is from Subsea Operations]

• UK Subsea Exports (£) = [UK Subsea Revenue] x [% of UK-based Revenue from Subsea Operations that is from Exports]

• UK Subsea Renewable Revenue (£) = [UK Subsea Revenue] x [% of UK-based Revenue from Subsea Operations that is from Offshore

Renewables]

Because the standardised survey format required respondents to choose from a set of default percentage ranges, the mid-point of each

percentage range was used for these calculations (e.g., a company that checked the 50-59% box was assumed to have subsea related revenue

equal to 55% of its total revenue).

The total output value of the UK subsea industry can not be calculated simply by adding the subsea related revenue from each subsea company,

as this approach would result in double counting of products and services within the supply chain. Instead, the output of the subsea industry is

generated from two types of sales:

• Sales directly to oil and gas operators or offshore renewable companies, domestically or abroad.

• Exports to non-UK based contractors or manufacturers within the subsea supply chain.

DISCLAIMER

CONTACT

www.subseauk.com | 0845 505 3535 | [email protected]

Subsea UK30 Abercrombie Court

Prospect RoadWesthill

AberdeenshireAB32 6FE

The conclusions contained in this report are the results of the exercise of our best professional judgment, based on publicly available information and confidential materials provided to us by

third parties. Use of this report by any third party for whatever purpose should not, and does not, absolve such third party from using due diligence in verifying the report’s contents.

Any use which a third party makes of this document, or any reliance on it, or decisions to be made based on it, are solely the responsibility of such third party. Subsea UK accepts no duty of care or liability of any kind whatsoever to any such third party, and accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made, or not made, or actions taken, or

not taken, based on this document.

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BUSINESS ACTIVITY REVIEW (2017) - Subsea UK · The sixth Subsea UK review of the subsea sector ... the impact of the global oil and gas ... contractors of manufacturers within the