Survey of International Activity in the Oil & Gas Sector .../media/se_2013/documents/se... ·...

Survey of International Activity

in the Oil & Gas Sector 2012/13

Sponsored by

ContentsScottish Enterprise Foreword 1

Johnston Carmichael Expert View 2

Executive Summary 3

1. Introduction 5

2. Business models for international activity 9

3. The scale of the sector 2012 13

4. International markets 21

5. Constraints and challenges to realising opportunities 29

6. Concluding remarks from industry 35

7. Conclusion 43

Appendix – A brief reminder of the sector in 2012 47

Survey of International Activity in the Oil & Gas Sector | 1

Scottish Enterprise Foreword, David Rennie The latest results from our annual export survey of the Scottish Oil & Gas supply chain reinforce the continued importance of our Oil & Gas industry. This year the report is produced by Scottish Enterprise in partnership with Aberdeen & Grampian Chamber of Commerce and sponsored by Johnston Carmichael – specialist advisors to the Oil & Gas service sector. My thanks go to them and all the companies who provided us with the information for this survey.

The results show exceptional growth in international activity which demonstrates that companies are continuing to develop and win business in international markets in ever increasing amounts. The Scottish Oil & Gas industry is continuing to thrive and prosper.

Total international sales from Scottish Oil & Gas supply chain companies now stands at £10bn. This represents an increase of 22% over the last year and international activity now accounts for over half of total Oil & Gas supply chain sales from Scotland at a record 50.2%. In 2002 this was 31% confirming that international activity is increasingly at the heart of the long term future for the industry.

Around the world, Scotland’s Oil & Gas skills and expertise are in high demand particularly in the areas of subsea and production and process management. In addition to this, confidence in the UK Continental Shelf remains positive with a number of significant projects such as Clair Ridge, Mariner, and Quad 204 currently being developed and significant investments in areas such as West of Shetland in addition to the development of new technologies and approaches with the aim of maximising production and value from the UKCS. Oil & Gas also has a crucial role to play in the development of new opportunities in other sectors including offshore renewables Carbon Capture and Storage as well as playing a leading role in the development of unconventional gas. While the recent Wood Review pointed to some challenges which the industry has to address, it is also important to highlight the importance of the sector and the economic contribution it currently makes.

We are already working with a whole range of companies in the sector, large and small, to encourage growth in international markets and ensure continued prosperity for our industry here in Scotland. We are now into year three of our industry led strategy ‘Maximising Our Future’ which reinforces the long-term importance of Oil & Gas to Scotland and sets out a clear vision for a vibrant and prosperous sector as well as setting strong export ambitions. The strategy highlights the priorities for Scottish Government, Scotland’s Enterprise Agencies, their international arm Scottish Development International, industry representatives and other stakeholders to help further strengthen the oil and gas sector in Scotland.

As part of our strategy we identified a number of priority markets with significant growth potential for the Oil & Gas supply chain including Africa, Brazil and in the Middle East. You will see these countries featuring strongly in the markets of greatest interest to the supply chain within the report findings. The results from the survey show that we are well on the way to achieving our long-term ambition of £20bn of international sales by 2020.

We look forward to working with partners, the Oil & Gas Industry Leadership Group and most importantly the company base to deliver even stronger growth in the future and to ensure that Oil & Gas remains a key success story for Scotland.

David Rennie International Sector Head, Oil & Gas Scottish Enterprise

2 | Survey of International Activity in the Oil & Gas Sector

Johnston Carmichael – Expert View As a specialist business and financial advisor to the Oil & Gas service sector, we welcome the findings of this report from Scottish Enterprise and Aberdeen & Grampian Chamber of Commerce. Continued internationalisation is a clear theme throughout the survey, signalling the strength of the industry and the export opportunities that lie ahead.

The UK Government is increasingly recognising the importance of the Oil & Gas sector and accordingly, has introduced a number of tax breaks, particularly pertaining to research, development and innovation.

As part of Budget 2014, the Chancellor announced that R&D tax credits would increase from 11% to 14.5% for SMEs. The Patent box was also introduced 12 months ago, allowing the profits from qualifying patents to be taxed at a reduced rate of corporation tax. These measures support R&D and most importantly, growth. There are major opportunities to be taken advantage of here and to date, Johnston Carmichael has delivered over £30million of tax relief for Scottish companies.

The Annual Investment Allowance (AIA) has also been increased from £250,000 to £500,000, and extended to 31 December 2015. This is positive news for the industry. Never has there been such a time to embark upon international growth, as the government looks to improve the UK’s export levels.

Exports from the Scottish Oil & Gas supply chain are expected to grow by 32% in the next five years, and it is essential that companies remain compliant with international finance regimes. Through our membership of PKF International, a global network of accounting and business advisory firms, we have strengthened our international links and are well positioned to support clients wherever in the world they may decide to expand operations.

Whilst export activity is on the rise, it was interesting to read that many of the barriers to international growth were consistent with the UK, such as a lack of skilled staff and the availability of working capital.

General support is also high on the agenda as an area where companies require support, stressing that assistance is needed to understand local markets, local policies and technical documents. With the use of international subsidiaries increasing in order to achieve international growth, this means that we may see even higher levels of M&A activity, as opposed to start up growth or partnering, which addresses the locality issues and language and cultural considerations.

We should also note the high growth potential of Africa and the Middle East, with many respondents eyeing expansion in these continents in the near future, however no single country appears to be key. This is mainly reflective of the diverse range of geographical opportunities that exist in these continents.

Australia has also been ranked as a top three country for both immediate and future expansion. Growth in this area has been significant already and the feedback that we are receiving from clients supports the fact that this is set to continue.

The delivery of £3.7 billion of exports from the Scottish Oil & Gas supply chain in 2012 demonstrates major success already. With the International Energy Agency (IEA) predicting that global oil consumption will increase by 14% between 2010 and 2035, from 87 million bpd to 99 million bpd, it is clear that there are huge international business opportunities for companies in the supply chain.

It is important now that the risks and barriers to exporting are minimised, and we address the concerns voiced by the respondents of this survey. Johnston Carmichael is committed to supporting companies operating within the Oil & Gas sector, helping them achieve their long term vision and ensure that Oil & Gas remains one of Scotland’s most thriving sectors.

Graham Alexander Head of Oil & Gas Johnston Carmichael


Executive Summary This is the first international Oil & Gas survey undertaken in partnership with Aberdeen & Grampian Chamber of Commerce (AGCC) and Scottish Enterprise (SE). The research is sponsored by Johnston Carmichael, business advisors to the Oil & Gas service sector.

The research was independently administered by the Research Unit at AGCC with fieldwork designed to receive data related to the financial year 2012/131. In total, respondents to the survey accounted for around 50% of domestic employment in the Scottish Oil & Gas supply chain.

The main findings are presented below.

Export and international activity • T he sector delivered £3.7bn of direct exports from Scotland in 2012. This equates to growth

of 53% since 2011 (£2.4bn)

• T he sector delivered sales of an estimated £6.3bn via international subsidiaries. This equates to growth of 9% from 2011 (£5.79bn)

• I n total, international sales (exports plus subsidiaries) for Scottish based supply chain companies in 2012 was an estimated £10.0bn, an increase of 22% since 2011 (£8.2bn)

Total sales• T otal Scottish based sales was £13.6bn, of which £3.7bn were export sales (see above)

and £9.9bn were domestic UK based sales; therefore

• T otal Oil & Gas supply chain sales from the Scottish based supply chain in 2012 were £19.9bn, an increase of 15.4% since 2011 (£17.2bn) made up of direct exports (£3.7bn) + international subsidiaries (£6.3bn) + sales to domestic market (£9.9bn)

• I nternational activity in 2012 accounted for a record 50.2% of total Scottish supply chain sales, an increase from a 47.6% share in 2011

The future – respondents expect significant growth over the next five years

• Total Scottish domestic Oil & Gas sales are forecast to grow by 18% over the next five years

• Total Scottish Oil & Gas export sales are forecast to grow by 32% over the next five years

• Total Scottish sales via international subsidiaries are forecast to grow by 29% over the next five years

The future – markets and risks to realising growth • 7 8 countries were mentioned by respondents as being current priority markets or those for future

consideration.

• I n near terms and over the next five years the USA will continue to be a key country alongside Angola, Norway, Nigeria, Brazil, Australia, the UAE and Malaysia.

• Africa, the Middle East and the Asia Pacific region are forecast to provide the most opportunities

• R eported risks to success that the sector is facing include challenges with capacity issues associated with labour, finance and the ability to explore international opportunities.

1 Referred to as 2012 in the remainder of the report


1. InTRODuCTIOn



Introduction Scottish Enterprise has previously published data on the scale of exports and international sales delivered by the Scottish Oil & Gas supply chain. This survey again assesses the scale of the sector related to the financial year 2012/13, in addition to assessing a number of wider influences and issues including:

• Methods of market entry

• Constraints to future growth

• An assessment of how international growth can be best supported

• A prediction of future growth markets and the scale of future growth

The research partners would like to thank the companies who completed the survey and have made the production of this report possible.

The Oil & Gas supply chainA variety of definitions have been used to describe, quantify and categorise the Oil & Gas sector. We have used the definition of Tier 2 and 3 companies created by Oil & Gas UK which allows us to standardise and compare data across studies. The definition is shown in figure 1.

KEY FACTTier 2 and 3 businesses representing over 23,000 employees in Scotland responded to the survey.


The main advantage of this definition is that it allows the research findings to be benchmarked against other studies. This approach also allows us to categorise and understand the issues facing different types of businesses. For example, we outline later that the nature of Tier 2 and 3 international activity is not ubiquitous.

The findings of this research exclude both Operators (Tier 1) and Support Service organisations, examples of which are shown in figure 1.

As part of our analysis we have also sought to ensure that the research reflects companies that are primarily Oil & Gas businesses. To do this we have analysed financial data on companies that have reportedOil & Gas activities as the primary driver for their business, with at least 30% of revenue generated from the Oil & Gas sector.

Figure 1: The Oil & Gas supply chain. (Source: Oil & Gas UK)

Operators arrange the financing, licensing and organisation of a project. They vary in size and in-house capability, and thus in how they use the supply chain.

This sector provides support and services directly to both operators and contractors. This can range from the specific (e.g. offshore catering and specialist training) to the generic (e.g. recruitment and IT support).

The supply chain includes all companies involved in a project including the end user (e.g. the Operator). The nomenclature typically refers to the Operator as tier 1, the main contractor as tier 2, and the sub-contractors as tier 3. Companies can straddle more than one tier.

Services and Products provided to the upstream oil and gas industry can generally be segregated into 5 sectors. It should be noted that many multi-service companies straddle more than one category.

Wells Facilities Marine & SubseaReservoirs

Tier 1 – OperatorsAll types of exploration, development, and production companies, integrated majors, large and

small independents, energy utility companies, non-operating companies, exploration companies

Support & Services

Catering/facilitymanagement

Sea/air transport

Warehouse/logistics

Communications

Recruitment

Training

Health, safety and environmental

services

Medical services

Banking/finance

Legal

Insurance

Accountancy

Energy consultancies

Marine/subsea contractors

Heavy lift contractors

Pipelay contractors

Floating production storage units

Subsea manifold/ riser design & manufacture

Marine/subseaequipment

Subsea inspection services

Engineering, operation, maintenance &

decommissioning contractors

Engineering consultancies

Structure and topsides design and fabrication

Machinery/plant design & manufacture

Engineering support contractors

Specialist engineering services

Inspection services

Specialist steels and tubulars

Well services contractors

Drilling contractors

Well engineering consultancies

Cement contractors

Drilling & well equipment design and manufacture

Drilling tubulars

Laboratory services

Reservoir engineering/ manufacturing consultancies

Seismic data acquisition &

processing contractors

Geosciences consultancies

Data interpretation consultancies

Seismic instrumentation

Data storage

IT hardware/software

Tier 2 – Main contractors and consultancies

Tier 3 – Products and servicessuppliers, components sub-contractors and sub-suppliers

2. BuSInESS MODElS FOR InTERnATIOnAl ACTIVITY



Business models for international activityDelivering international businessOur analysis highlights that the supply chain is using a variety of models to deliver their international activity. This activity is summarised in figure 2.

Figure 2: Current business model

You sell directly from a UK base

You have an in-country subsidiary

Other

You have established a joint venture partnership

You sell via a 3rd party

You are a distributor

You are an agent

50%

24%

9%

9%

3%

3%

2%

50% of respondents sell from a UK base, with 24% operating via an in-country subsidiary. We found that large Tier 2 companies were most likely to use a local subsidiary company, although in part the use of this model was also dependent on the countries respondents were operating within. It was also clear that Tier 3 contractors were more likely to use a variety of different models to enter the market including joint venture partnerships.

Overseas subsidiary location The data collected allowed us to understand more about the locations in which subsidiary companies were most likely to be used.

Figure 3: Top subsidiary locations

USA

Singapore

Australi

a

Canad

a

Norway

Netherla

ndsDubai

Saudi A

rabia

Egypt

Malays

ia

19%

43%

19%17%

15%

9% 9% 9% 9% 9%

North American markets, particularly the USA were reported as being the main locations where business is delivered via an overseas subsidiary. However, relatively high levels of responses were also provided for Singapore, Australia and Norway.


The use of partnersAs a follow-up question we sought to understand whether partnerships were important when entering new markets.

Figure 4: Importance of partners in overseas markets

Local partner

1. Not all important

2. It was a contributor, but not vital

3. It was critical

UK partner

33%

33%

34%

65%

24%

11%

Other mentor

65%

28%

7%

Local partners are clearly the most important route to enter new markets. Respondents were much less reliant on the use of a ‘UK partner’ or ‘other mentor’ with the majority feeling they were ‘not at all important’.

There were some interesting variances between Tier 2 and Tier 3 contractors. Reviewing the data in more detail we found Tier 2 businesses generally found the use of a partner more important (with 46% of Tier 2 contractors finding a local partner ‘critical’ compared to 26% of Tier 3).

More detailed data analysis also shows Tier 2 contractors were more likely to use an ‘other mentor’, with 43% stating this as a ‘contributor’ or ‘critical’ compared to 29% of Tier 3 companies.

KEY FACT66% of respondents relied on local partners to enter new markets, 33% felt it was critical.


3. ThE SCAlE OF ThE SECTOR 2012



The scale of the sector in 2012 To quantify the scale of activity being delivered by Scottish Oil & Gas supply chain companies we asked respondents to tell us:

1. What their total UK sales were

2. T he proportion of UK revenue which related only to Oil & Gas activity and the nature of non-Oil & Gas revenue

3. The proportion of UK sales which was generated from exports

4. The proportion of these exports which came from Oil & Gas

5. The volume of activity being delivered by international subsidiary companies

The results of our analysis and the apportionment of this to Scotland is described in the remainder of this section.

Scaling exports as a percent of Oil & Gas salesThe survey data suggests exports account for 27% of total Scottish Oil & Gas sales. One might expect a figure higher than 27% but it is important to reiterate that this focuses on revenue ONLY from Oil & Gas activities (total exports may be higher) and also excludes activities delivered via international subsidiaries.

Tier 2 and Tier 3Our analysis suggests that by financial value Tier 2 contractors are significantly more likely to be delivering activity via international subsidiaries than Tier 3 contactors.

With the higher propensity to deliver work via subsidiaries it is probably unsurprising that across our sample we found that overall Tier 2 contractors also have a lower percentage of their business being delivered from the UK via exports.

We found that 34% of all UK sales are generated from export sales within SME companies.

Sub-sectoral analysisWe found that contractors operating mainly in the ‘Wells’ sub-sector were most likely to export with 30% of UK Oil & Gas revenue being generated from export sales.

The Marine and Subsea sub-sector reported that around 20% of its UK Oil & Gas revenue was generated from exports. This grouping had some larger companies with significant scale international subsidiaries.

The facilities sub-sector was as likely to export as the Marine and Subsea sector and again there are several large employers in this sub-sector with large international subsidiaries.

KEY FACTCompanies within the ‘Wells’ sub-sector have the highest percent of revenue derived from direct Oil & Gas exports.


Total uK sales and total (uK and Scotland) Oil & Gas salesOur first stage of financial analysis was to assess:

• total UK sales; and

• total UK sales derived from Oil & Gas activities only

This was an important first step as not all revenue generated by ‘Oil & Gas supply chain companies’ is directly associated with the Oil & Gas sector as our analysis of ‘diversification’ shows on page 20.

Figure 5 shows our estimate of UK supply chain company sales and Oil & Gas sales.

Figure 5: Total Oil & Gas sales (UK and Scotland).

Source: AGCC

UK Total DomesticTurnover

UK Total DomesticTurnover

(Oil & Gas only)

£31.6bn £30.1bn

Total Domestic Turnoverfrom Scotland(Oil & Gas only)

£13.6bn

We estimate that in 2012 UK Oil & Gas supply chain companies generated £31.6bn of sales and that £30.1bn of this related to Oil & Gas activities. Our analysis shows that £13.6bn related to activity driven from Scottish based Oil & Gas supply chain companies (this includes domestic sales and exports).


Total Oil & Gas export activityFollowing the above analysis we assessed the scale of export business as a proportion of total UK and Scottish sales, this is shown in figure 6. It is important to state that this excludes any assessment of activities delivered by international subsidiaries of companies, ie these are exports directly from Scotland.

Figure 6: Exports from the UK and Scotland.

Source: AGCC

Total Export Salesfrom UK

Total Exportsfrom UK

(Oil & Gas only)

£8.9bn £8.2bn

Total Exportsfrom Scotland(Oil & Gas only)

£3.7bn

Based on our analysis we estimate that UK export sales of Oil & Gas supply chain companies is in the region of £9bn with £8.2bn of that directly related to Oil & Gas activity. Total Scottish Oil & Gas export activity The previous analysis allows us to present figure 7 which shows the scale of exports derived from Scotland since 2009. Figure 7: Sales – Exports from Scotland.

Source: AGCC, SE / SCDI

2009 2010 2011 2012

£4.0bn

£3.0bn

£2.0bn

£1.0bn

2.5 2.42.3

£0bn

Scottish exports Linear trend line (Scottish exports)

3.7

Our analysis shows Scottish based Oil & Gas supply chain businesses delivered £3.7bn of direct exports during 2012.


The export performance during 2012 equates to an increase of 53% since 2011. Survey data is always likely to show year on year fluctuations and as such the longer-term trends are most important to consider. However, it is clear that 2012 was an exceptional year for the Oil & Gas supply chain with relatively stable oil prices throughout this period (see appendix A).

The 2012 findings bear strong correlation to the AGCC Oil & Gas survey which tracked a consistently high level of confidence in international activity between 2009 and 2012 as demonstrated in figure 8.

Figure 8: The AGCC Oil & Gas Survey: Business confidence.

Source: AGCC

May

-Sep

04

Sep

04-J

an 0

5

Jan-

May

05

Aug

-Dec

05

Dec

05-

Mar

06

Apr

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06

Sep-

Dec

06

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20%

40%

60%

80%

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-40%

Business confidence elsewhere compared to a year ago Business confidence elsewhere over the next year

Again looking at the expectations set out by contractors in late 2013 we would expect the next iteration of this study to show further growth in export and international activity. We return to this later in the report. Overseas subsidiaries (companies with a Scottish base) Quantifying the scale of overseas subsidiary business activity can be challenging using a survey methodology due to the scale of this part of the industry.

Part of the challenge of quantifying international subsidiary sales is that there is no standard measure of activity to benchmark against e.g. the total number of companies with subsidiaries or total employment.

Based on our earlier analysis around methods of market entry it is also clear that whether a company exports or not depends on factors such as the country/region, partners operating in that location, local regulations and internal business strategies.

Despite these challenges we have been able to present an assessment of the scale of activity delivered by Scottish headquartered businesses with international subsidiaries. Figure 9 presents the assessment of revenue generated via international subsidiaries.


Figure 9: Sales – International subsidiaries.

Source: AGCC, SE & SCDI

2009 2010 2011 2012

£6.5bn

£6.0bn

£5.5bn

£5.0bn

£4.5bn

4.7

5.3

5.8

6.3

The chart illustrates that our analysis has a broad fit with historic data. We estimate that total sales from international subsidiaries with Scottish headquarters is £6.3bn. This shows a growth of around 9% since 2011 and 33% since 2009.

Total international activity Figure 10 summarises our analysis for total international activity being delivered by the Scottish Oil & Gas sector supply chain. This chart adds the contribution of exports and international subsidiaries.

Figure 10: Total international sales (exports plus subsidiaries).


2009 2010 2011 2012

£11.0bn

£10.0bn

£9.0bn

£8.0bn

£7.0bn

7.2 7.5

8.2

10.0


Our analysis shows that total international sales have grown significantly between 2011 and 2012 with an estimated growth of 22%. This growth has mainly been driven by an increase in direct exports from Scotland.

This increase in total international sales also represents a rise in the percentage of international business as a percent of Scottish sectoral total sales. Total sales from the Scottish Oil & Gas supply chain has risen to £19.9bn in 2012 from £17.2bn in 2011. This is made up of £9.9bn of domestic sales, £3.7bn of direct export sales and £6.3bn of international subsidiary sales.

Figure 11: Percentage of sales attributed to international activity.


2009 2010 2011 201245%

46%

47%

48%

49%

50%

51%

45.446.5

47.6

50.2

The future During the research we asked for assessments of future sales for total revenue, exports and international business over a five year period. In response to this question participants reported that: • total Scottish domestic Oil & Gas sales are forecast to grow by 18% over the next five years

• total Scottish Oil & Gas export sales are forecast to grow by 32% over the next five years

• total Scottish sales via international subsidiaries are forecast to grow by 29% over the next five years

The achievement of these targets and the delivery of business in new markets will clearly rely on many factors, opportunities and constraints, some of which we go on to highlight in section 5.

KEY FACTTotal international sales being delivered by Tier 2 and 3 contractors in 2012 rose to £10.0bn.


DiversificationWe asked participants to provide data on which other industries they operate in. The reported total percentage of sales from other ‘sectors’ is shown in table 1.

Table 1: Diversification

Other general engineering

Power generation

Defence Renewables Other civil engineering

Carbon capture and storage

Nuclear

50% 20% 5% 18% 1% 2% 3%

It is clear that other energy sectors and general engineering activities contribute the largest share of ‘other’ business to the respondents. Again, this element of the research has been analysed using only responses from businesses delivering at least 30% of sales from the Oil & Gas sector.

Adding this filter ensured the findings were not skewed by some individual large companies with large nuclear and power generation business units but a small percentage of sales from Oil & Gas activity.

Figure 12: Revenue from other sub-sectors.

Source: AGCC

Other G

eneral

Engineering

Power g

eneratio

n

Defence

Renewab

les

Other C

ivil

Engineering

Carbon C

aptu

re

and Stora

geNucle

ar

£0.6bn

£1.4bn

£0.1bn

£0.5bn

£0.0bn£0.1bn £0.1bn

An assessment of UK sales for supply chain companies that operate in other sectors is shown in figure 12. In total we estimate that sales from other sectors is around £2.8bn2, this is a relatively small percentage of total sales of Oil & Gas supply chain companies.

2 Subject to rounding errors as companies usually reported to the nearest 5%


4. InTERnATIOnAl MARKETS



International marketsWe asked respondents to provide details of the markets in which they are delivering their international activities. This information is of course commercially sensitive and some companies were reluctant to disclose this data. However, sufficient data was provided to allow us to scale the size of existing activity.

Main markets – Regions New regions have been used in this year’s research to better reflect our understanding of the locations in which supply chain businesses are delivering international business. Table 2 shows the top 6 reported regions this year to allow a comparison with historic data including:

• Total international sales by region

• Regional sales as a % of all international sales

• Relative regional ranking

Table 2: Top 5 international regions

Total international sales (exports plus subsidiaries)

Percentage of total international sales

Ranking

Region 2011 (£bn) 2012 (£bn) 2011 2012 2011 2012

North America 2.6 3.6 32% 36% 1 1

Africa 1.2 2.3 15% 23% 2 2

Non-EU 1.2 1.4 14% 14% 3 3

Australasia 0.7 1.0 9% 10% 4 4

Caspian n/a 0.7 n/a 7% n/a 5

Middle East 0.5 0.7 6% 7% 5 6

Not allocated / other 2.0 0.3 24% 3% n/a n/a

Total 8.2 10.0 100% 100% n/a n/a

The table shows our higher estimates of regional sales in part because our total sales assessment is higher. We have also made a pro-rated allocation of sales where respondents did not allocate data to a region however; the analysis shows that the percentage split of revenue by region is relatively stable.

The table also shows little change in terms of the rankings in each region with the exception of the inclusion of the Caspian region in the analysis.


Revenue by marketThe data collated also enabled us to compare the relative movement of countries as major international markets between 2011 and 2012; this is shown in table 3.

Table 3: Main markets – ranking top twenty

Country 2011 Rank 2012 Rank Movement

USA 1 1 0

Angola 5 2 3

Norway 4 3 1

Canada 2 4 -2

Nigeria 6 5 1

Australia 3 6 -3

Azerbaijan 7 7 0

Israel 8 8 0

Russia 9 9 0

Columbia 14 10 4

UAE 11 11 0

Kazakhstan 15 12 3

Ghana 23 13 10

Egypt n/a 14 n/a

Qatar 28 15 13

Brazil 13 16 -3

Equatorial Guinea 12 17 -5

Malaysia n/a 18 n/a

Saudi Arabia 30 19 11

Ivory Coast n/a 20 n/a

The table shows relatively small movements across the top 5 country markets, indeed this is largely the case for the top 10 ranked countries with the exception of Trinidad. In 2011 Trinidad was ranked at the 10th largest country market, in 2012 we ranked this as the 34th largest country market.

The major rises in the rankings compared to 2011 are Kazakhstan, Ghana, Qatar, Columbia and Saudi Arabia.


Table 4 also provides an assessment of sales by the top 10 countries. This assessment is always likely to be a broad estimate using a survey methodology3.

Table 4: Revenue by country, total international sales3 from Scottish supply chain

Country % of total international sales Total international sales

USA 25.57% £2.55bn

Angola 11.26% £1.12bn

Norway 10.75% £1.10bn

Canada 10.62% £1.06bn

Nigeria 10.60% £1.06bn

Australia 9.54% £0.95bn

Azerbaijan 5.92% £0.59bn

Israel 5.19% £0.52bn

Russia 3.43% £0.34bn

3 We have not included countries below the top 10 as data becomes more volatile and may also be disclosive / commercially sensitive

Future MarketsWe asked respondents where they expect their top five future growth markets to be in the immediate future and over the next five years. A total of 78 different priority countries were mentioned by respondents in terms of current and future markets and the map opposite illustrates the key findings.


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The immediate future

Figure 14: Percent of respondents reporting region as a growth opportunity in the immediate future

Africa

Middle East

Asia P

acific

Non EU

North A

meric

a

Australa

sia

South A

meric

a EU

Caspian

Latin &

Centra

l

Americ

a

58%63%

48%

36% 34%

19% 17% 15%

6% 6%

Figure 15: Percent of respondents reporting country as growth opportunity in the immediate future

USA

Norway

Australi

aBra

zilUAE

Malays

ia

Singapore

Angola

Nigeria

Saudi A

rabia

21%

25%

19%

15% 15%13%

12%11%

9%7%

Indonesia

6%

OVERVIEWAfrica is the region with the greatest growth potential for both the immediate future and for the next five years, followed closely by the Middle East and the Asia Pacific region.

The review by country shows a different geographical picture as no African counties were ranked as top five in the immediate future or over the next five years. The countries which were most mentioned by respondents as a growth opportunity in the immediate future and next five years were the uSA, norway, Australia and Brazil.

This result is probably due to the wide range of opportunities in many countries across the African continent.


The next five years

Figure 16: Percent of respondents reporting region as growth opportunity in the next five years

Africa

Middle East

Asia P

acific

Non EU

North A

meric

a

South A

meric

a EU

Australa

sia

Latin &

Centra

l

Americ

aCas

pian

44%46%

41%

28%25% 24%

16%12%

10%

4%

Figure 17: Percent of respondents reporting country as growth opportunity in the next five years

USABra

zil

Norway

Australi

a

Malays

ia

Singapore

UAE

Saudi A

rabia

Nigeria

Angola

19%19%

12% 12%

10%9% 9%

8%7%

6%

Mexico

5%

Indonesia

5%

Canad

a

5%

China

5%


Reviewing the data in detail there have been some minor shifts in results compared to previous reports delivered by Scottish Enterprise.

In 2011 Malaysia was considered the top growth market but it has now dropped to fifth and sixth position for the next five years and immediate future respectively.

Our analysis shows a notable absence of individual countries in the Middle East region with only UAE and Saudi Arabia making it in to the top ten.

Australia has increased significantly in terms of a future growth market, featuring as a top 3 country for both the immediate future and over the next five years. The Australasian market did not feature highly in the previous survey, where respondents were asked to indicate their future plans for international markets.

We found the African region came out as the one of most interest to businesses in Scotland with 63% citing this as a region with immediate potential. Within the African market, Angola and Nigeria were mentioned as top growth countries for both the immediate future and over the next five years in that region.

This corresponds to previous surveys where respondents noted Angola as their top growth African market. It is fascinating that Africa has come out as the top region although few individual countries rank highly alone. This could reflect the wide range of geographical opportunities on the continent or uncertainty around doing business there.

We can see that the Middle East region was second with a 58% share of the response. However, in terms of future growth countries, the top country, UAE, featured fourth and sixth as overall growth countries in the immediate future and over the next five years.


5. COnSTRAInTS AnD ChAllEnGES TO REAlISInG OppORTunITIES



Constraints and challenges to realising opportunities To create a rounded assessment of international activity it was considered important to understand not only the value and scale of the international market but what existing factors are limiting further growth.

Barriers to growthFigure 18 shows the barriers to growth cited by respondents and their corresponding percentage of responses.

Figure 18: Barriers to international trade

Lack of skilled staff

Capacity/resource to explore international opportunities

Political risks/uncertainty

Up front cost of market entry

Availability of working capital (cashflow)

Local content requirements (e.g. using local partners)

Legal complexities

Understanding local regulations

Fear of payment problems

Perception of business risk

Security considerations (e.g. including managing staff…)

Finding overseas distributors/agents

Difficulty prioritising markets

45%

44%

33%

33%

33%

25%

25%

24%

23%

20%

19%

18%

18%

Skills shortages are well documented as a challenge in the Oil & Gas sector, and it appears that this is also an issue in delivering international growth aspirations. A lack of skilled staff was reported as the main limiting factor to export activity with 45% of respondents citing this in their top five barriers.

The second most cited barrier is closely linked to skills with ‘capacity and resource to explore international activity’ being mentioned by 44% of respondents.

Other significant limiting factors are often of a financial nature with ‘up front cost of market entry’and ‘availability of working capital’ being cited by 33% of respondents. This was noted as a significantly limiting factor in the 2009 survey as the global credit crisis made it difficult for companies to fund some of their activities.

KEY FACTLack of skilled staff was the main barrier to international activity cited by respondents (45% mentioned). Also mentioned most often were ‘capacity to explore international opportunities’ and ‘political risks/uncertainty’.


Factors related to the actual operation of business overseas were also often cited with ‘political risks/uncertainty’ and ‘local content requirements’ also featuring highly in the chart.

Factors the sector deals with most ‘easily’As part of this analysis clear messages were given about what are NOT considered major barriers to trading internationally in the sector.

Table 5: Factors that were NOT considered to be barriers to international trade

Potential barrier to international trade % of respondents who mentioned this factor

No appropriate product or service 1%

Language concerns 3%

Complexity of export documentation 4%

Support with VISAs 4%

Transport/infrastructure difficulties 5%

Cultural concerns 6%

Exchange rate 7%

Perhaps most interesting is the low rating given to language concerns’ (3%) and ‘cultural concerns’ (6%). This finding is not typical of most sectors. In a recent British Chambers of Commerce survey4 language and cultural concerns were cited as barriers to trade. Perhaps one of the reasons for this sector being different may be that English is the first language of some of the major existing and growth markets e.g. USA and Australia.

4 http://www.britishchambers.org.uk/assets/downloads/policy_reports_2013/13-06-06%202013%20Survey%20Factsheet%20SKILLS.pdf


Strength of views around constraintsRespondents were not only asked which factors played a part in limiting their international activity but also to rank these factors from ‘1’ to ‘5’ with ‘1’ being the most limiting factor.

We found that ‘understanding local regulations’ was a concern for 24% of respondents but when looking at the strength of feeling only 6% rated this in their top three concerns.

Similarly with ‘security considerations’, 19% of respondents felt this a limiting factor but only 4% rated this in their top three.

This tells us that while these two factors are affecting a number of companies in their international activity these are potentially not priority areas for intervention.

Table 6: Barriers to international activity (strength of feeling)

Barrier to international activity % mentioned

Strength of feeling

(% who ranked as one of top 3 concerns)

‘People & capacity’

Lack of skilled staff 45 35

Capacity/resource to explore international opportunities

44 31

‘Financial constraints’Availability of working capital (cashflow) 33 27

Up front cost of market entry 33 26

‘Regulatory & political challenges’

Political risks/uncertainty 33 20

Legal complexities 25 18

Local content requirements (e.g. using local partners)

25 13

Understanding local regulations 24 6

‘Financial constraint’ Fear of payment problems 23 16

Others

Perception of business risk 20 12

Security considerations (e.g. including managing staff security)

19 4

Difficulty prioritising markets when faced with multiple opportunities

18 11

Finding overseas distributors/agents 18 13


Specific challenges for specialist contractorsWhile a lack of skilled staff was the main barrier for both Tier 2 & 3 companies, we found some wide variances in other areas. Generally we found that Tier 3 Specialist Contractors were more likely to rate a wider number of factors as likely to constrain activity.

Table 7: Barriers to international activity by tier

Tier 2 Contractor % mentioned

Tier 3 Specialist Contractor % mentioned

Up front cost of market entry 8 24

Perception of business risk 4 15

Capacity/internal resource to explore international opportunities

12 29

Understanding local regulations 3 19

Table 7 helps illustrate that risk and market entry costs and capacity issues are much more acute for Tier 3 than Tier 2 companies. The analysis shows that a ‘one size fits all’ approach to supporting companies to enter new markets is not appropriate.

6. COnCluDInG REMARKS FROM InDuSTRY



Concluding remarks from industry The survey responses and analysis show great opportunity in the sector with a strong set of results in 2012 and ambitious growth targets for the next five years.

Results from analysis on perceived barriers show there are a number of areas that may prevent these ambitious targets from being realised. We therefore asked industry what could be done to resolve these challenges.

Respondents were asked ‘if there was one thing you could receive help with to aid your international/ export activity what would this be?’ This question was answered by over 50% of respondents, an unusually high response for this type of question, suggesting the industry is looking for intervention. The results of this question fell into three very clear categories and unsurprisingly linked directly back to the perceived barriers.

Figure 19: Industry requirements

General supportUnderstanding local markets

Help making overseas contact

Help finding reliable agents

Help with international marketing

Reliable inteligence on local markets

Financial supportAccess to capital

Financial aid

Funding to help with growth

Funding to help overseas recruitment

Recruitment/resourcesStaff shortages

Resource to exploit international opportunities

Help recruiting skilled staff

• Advice to help understand the markets, politics and legal complexities

• Detailed understanding of the complexities of operating within specific countries/regions

• Better sources for leads through UK companies

• Overview of agents/companies who are already working in the foreign markets with UK companies. We always end up having to find them ourselves

• The ability to walk in to a country and everything is set up. Establish an office/company in a new country within days (including taking care of tax etc)

• Introduction to suitable companies to represent us and work with us

• Good market research in developing an international strategy plan

• Financial aid/mission participation. Small companies cannot afford sky high costs

• Additional funding to increase overseas growth and extra staff

• Assistance with costs of overseas sales staff

• Financial support

• Funding for training

• Cut the amount of money which leaves my business for nothing, Accountancy fees, tax corporation (10% for small companies)

• Capital availability

• Availability of appropriately skilled engineers, mainly CNC machine operators, is the major constraint which is affecting our capability to respond to market opportunities

• Availability of more highly skilled staff competent to undertake well examination roles and responsibilities

• Having experienced, commercial personnel, knowledgeable of our sector, in the local embassies/consulates

• Skilled personnel with detailed knowledge of products and Oil & Gas markets overseas to develop our business

• Resource to exploit international opportunities


Having a lack of skilled staff was the biggest barrier to international activity cited by respondents and many of them also mentioned this as an area where support is required. In particular having more ‘highly skilled staff’ or ‘staff with experience in international activity’ were mentioned by respondents.

In addition, the majority of answers to this question fell into a ‘general support’ category. Areas where businesses wanted more support included help with understanding local markets, local policies and technical documents as well as a need to reduce the general complexity of working in an overseas market. More specifically respondents requested help with making contacts and finding a partner or agent.

The potential for financial support was also heavily cited by respondents. As with the question on barriers this mainly focused on having access to capital and general ‘financial aid’ to support growth activities. Respondents also mentioned requiring funding to help with ‘overseas recruitment’.

Case studiesThis sub-section provides case studies of selected companies who have faced and overcome challenges in international markets.


Cresent, a health and safety consultancy for the oil and gas sector, last year became the largest Control of Work (CoW) supplier in Iraq after winning two significant contracts with BP Iraq NV and LUKOIL.

However, the journey commenced a decade previously when Cresent, based in Westhill, took part in trade missions to the Middle East with Scottish Development International.

That helped to build relationships and increase awareness of Cresent’s capabilities, and soon the firm was providing consultancy, audit and training for a number of clients in Dubai and Abu Dhabi.

But what is the real key to breaking into the Middle East? Demonstrating a true understanding of the local marketplace and acknowledging there is no one-size-fits-all approach to international operations. Cresent took time to understand an emerging market with different safety standards and expectations.

A proven track record led to Cresent being approached by BP Iraq NV to supply its WorkSafe® package, comprising of a multi-language CoW software solution, training and consultancy. Cresent demonstrated an understanding of the difficult working environment and behaviours, and that gave them the edge over other suppliers.

Flexibility is key to cracking the Middle East – Cresent participated in a major operation to fly 900 Iraqis to Edinburgh as part of the contract with BP Iraq NV.

Crescent is account managed by Scottish Enterprise and has received support to increase awareness in overseas markets which would otherwise have been too cost prohibitive. Crescent believes that continued support from Scottish Enterprise is important to maintain and build overseas business.


Downhole products is a world market leader in the design, manufacture and supply of casing accessories and completion tools including centralisers, reamer guide shoes and cable clamp protectors. The 20-year-old company is headquartered at Portlethen, operates globally and has received two Queen’s Awards.

The main challenge to international activity is the requirement for local knowledge. The company is sensitive to local cultural awareness and respect and believes that employing local people is crucial in many marketplaces. In Vietnam, for example, the company had employed an agent but the recruitment of a local person opened many doors, leading to substantial growth and the opening of an office in the country. Local manufacturing wherever possible also enables product lines to be stocked close to clients, avoids many shipping problems and, importantly, creates jobs locally.

Downhole Products is successful in the USA, Middle East and Far East, amongst others, and now has offices in these regions. Whilst agents are an excellent way of spreading the word in a quick, cost-effective way and are used in the Africas, the company is keen to create its own office there to ensure dedicated marketing of the company’s own suite of products.

Downhole Products aims for year-on-year growth of 20% (minimum) however, since 2010, has achieved 30+%.


EnerMech are account managed by Scottish Enterprise. Founded in 2008, EnerMech provides mechanical engineering services, split in to seven business lines, to the international energy industry. With more than 2,000 staff working from 31 international locations, EnerMech expect revenues in 2014 to exceed £280 million.

Before entering a new market the company appoint a General Manager at regional director/country manager level to oversee the financial/legal requirements of getting started in the host country, find facilities, recruit personnel and secure projects. A reliance on ex-pats at start-up will gradually be replaced with local recruits.

Their highly experienced senior management are acutely aware of cultural sensitivities across borders and how best to do business from region to region, and we fully embrace local content rules and regulations. For example, on one major cranes contract we have flipped our indigenous staff from initially 20% to 80%. Our in-house industry-accredited training programmes provide a legacy of enhanced skills and qualifications wherever we operate.

Each regional hub reports to a Regional Director and firm procedures for training and development of our people, including annual performance reviews, are standard across all regions. Our HR Director has a global responsibility and is supported by regional HR leads. Our senior management team spend a lot of time on-the-road and present at regular employee forums which give staff the opportunity to raise concerns, contribute, and to hear about developments in the wider organisation.

Alba power, headquartered in Netherley, Aberdeenshire, has increased total turnover 40% to £14m and export turnover in the past year to over £7m. It has created 18 new jobs worldwide, increasing its headcount to 59 – as part of its partnership with Scottish Enterprise.

Having enjoyed substantial growth and investment over the past decade, the specialist provider of dedicated support services to the aeroderivative gas turbine, power turbine, controls and rotating equipment markets, sought to expand its domestic and international market share.

Scottish Enterprise facilitated the company’s ambitions through intensive training and strategy workshops to define future business growth opportunities, as well as offering strategic marketing direction to bring the firm closer to its customer base.

A team of practitioners conducted a manufacturing review focused on improved capacity planning and more agile business processes – designed to equip the firm for an increasingly competitive marketplace.

Terry Alderton, Managing Director at Alba Power, said: “We have been working closely to create a sustainable business plan and innovation value proposition focused on customer needs and commercial growth.

“Scottish Enterprise provided expert third party advice including in-depth market intelligence andassistance with defining and delivering a brand strategy that has not only met current business needs but has propelled the brand on to a global audience.

“In addition to an increased domestic presence, 59% of our sales now come from outside the UK.

“We are currently active in Africa, America, Middle East, Europe, Australasia, Asia and India all driven by a global sales team with specific territory focus and responsibility and supported by both our base in Scotland and our developing operation in Houston which was set up in 2012 with the help of SDI’s incubator.

“While our main workshop facilities are strategically based to service the North Sea offshore market, we have demonstrated we can bring innovative, cost-effective gas turbine solutions to a global client base.

“Scottish Enterprise also conducted an internal review which resulted in an intensive programme of leadership and management training.

“This enabled us to rapidly develop our workforce and supported our policy of promoting from within for key leadership roles. We have also initiated an apprentice scheme.”

The relationship has assisted Alba Power in its aim of consolidating its position as a global force in the Oil & Gas support services market.

Colin Turnbull, Scottish Enterprise, said: “Alba Power has been a great success story over recent years and we are pleased to have assisted their ambitions of global leadership in their sector.

“A team of practitioners conducted a manufacturing review on quality and capacity planning, which has led to streamlined business processes and a more effective supply chain, focused on improved quality and delivery.

“Of key importance, Scottish Enterprise were instrumental in facilitating a corporate identity change through a rebranding exercise and a strategic marketing planning process that led to an increased customer focus.”

In 2013 Alba Power overhauled its 200th gas turbine – a clear indication that the firm has reinforced its position as the number one global independent for the provision of dedicated support services in its sector.



7. COnCluSIOn



Conclusion This is the 14th Scottish Enterprise International Oil & Gas Survey. During 2012 the global economy continued to show economic growth alongside increases in both oil demand and consumption.

It is clear from our analysis that the Scottish Oil & Gas supply chain benefited from this growth overseas and the record investment levels in the UKCS during 2012. In particular our analysis has shown that 2012 was an excellent year for the Oil & Gas supply chain in international markets.

In total Scottish based domestic Oil & Gas supply chain sales was £13.6bn in 2012, an increase from £9bn in 2011.

Exports and international subsidiaries• T he industry delivered £3.7bn exports from the Scottish

supply chain which equates to a 53% increase on 2011 results

• S ales from international subsidiaries increased in 2012 by 9% to an estimated £6.3bn

• I nternational total sales grew to £10.0 billion an increase of £1.8bn from £8.2bn in 2012, a percentage increase of 22%

• A dding international subsidiary sales, export and domestic sales, total Oil & Gas supply chain sales from the Scottish based supply chain increased by 15.4% to £19.9bn, a rise from £17.2 billion in 2011

• I nternational activity in 2012 accounted for a record 50.2% of the Scottish supply chain sales, an increase from 47.6% in 2011.

In terms of export geography, respondents mentioned 78 different countries as major contributors to their international business now or in the immediate future.

North America continued to be the top export region for companies that responded to the survey with Africa, non-EU countries and Australasia being other high ranking regions. These results showed little change from 2011. The growth that was reported in the Middle East region during 2011 was maintained during 2012.

Our analysis disaggregated international activity by country too. We found that the USA remained the top country. In 2011 results reported increased activity in the Canadian marketplace but this decreased to fourth place behind the USA, Angola and Norway during 2012.

Ts

Total exports

Total subsidiary turnover

£6.3bn

£3.7bn

Domestic Oil & Gas turnover

Total subsidiary turnover

£13.6bn

£6.3bn

Total international sales (£bn)

otal sales from Scottish Oil & Gas upply chain (£bn)


In terms of the major markets now and in the next five years we believe that the research has highlighted some clear priorities and our conclusions are shown in table 8.

Table 8: Growth markets

Country Existing scale Scope for growth

USA Most significant Most significant

Angola Large Medium

Norway Large Significant

Canada Large Limited

Nigeria Large Medium

Australia Large Significant

UAE Growing Significant

Malaysia Growing Significant

Saudi Arabia Growing Medium

Brazil Growing Significant

Our analysis has also highlighted a number of other markets which have potential growth, these are:

• Singapore – growth potential

• Mexico – growth potential

• Indonesia – growth potential

• Kazakhstan – existing activity with some growth potential

• Azerbaijan – existing activity with some growth potential

• Russia – existing activity with some growth potential

• Ghana – existing activity with some growth potential

• China & Mexico – limited existing activity with some growth potential

Unsurprisingly respondents were positive about the future particularly noting that their international business levels would grow. In total exports from the Scottish Oil & Gas supply chain are expected to grow by 32% in the next five years.

If we look more widely this confidence may be well founded. The Scottish supply chain is represented around the globe and the International Energy Agency (IEA) predicts an increase in global oil consumption from 87 million barrels per day in 2010 to 99 million barrels per day in 2035.

While confidence is high the supply chain has also provided some real insight into the challenges that will be faced in the future. Growth limiting factors included having a lack of skilled staff, financial constraints and the difficulties associated with developing a clear understanding of new markets.

Our analysis has shown that to date UK partners and business mentors are not being widely utilised and this alongside the provision of sound information on markets will help those seeking out new markets.


This is an exciting time for the industry however it is clear that even this innovative and growing sector cannot deliver ambitious targets on its own. Industry, stakeholders and Government must work together to realise the significant opportunities available to the Scottish supply chain. In that respect we expect the Oil & Gas Industry Leadership Group (ILG) to play a major role in helping to facilitate future international growth alongside Scottish Development International (SDI).

SDI, the international arm of Scotland’s Enterprise agencies, has a network of 27 offices across the globe responding to new international opportunities, particularly in emerging markets where staff operating on the ground with specific in-market expertise is vital to secure new business.

With new offices recently opened in locations such as Hyderabad, Calgary, Shenzhen and Rio de Janeiro, SDI are expanding to support a larger company base, particularly in the Oil & Gas sector.

The work of the global network is supported by an Oil & Gas team in Scotland, which works closely with growing Scottish companies to help their global business activities.

This includes activity across the spectrum, from helping companies identify new market opportunities, to developing trade missions to key global Oil & Gas locations such as Brazil and exhibiting at leading exhibitions such as OTC in Houston.

In 2013/14 the leading markets where SDI helped Scottish companies to do business were the US, Norway, UAE, Brazil, Malaysia, Nigeria, Australia, Singapore, Angola and Canada.

To support this activity SDI has published guides to doing business in Australia, Brazil and West Africa, and is currently working with Aberdeen & Grampian Chamber of Commerce to develop eight further practical guides to doing business in priority markets.

Examples of recent activity include a mission of 10 Oil & Gas companies for OTC Asia in Kuala Lumpur, and also another mission of 11 companies to Brazil.

2014 will see SDI take a record 63 companies to OTC in Houston, 23 of which will be exhibiting on the Team Scotland stand.

In 2013/14 SDI has helped bring in 11 investment projects in Oil & Gas which has created 357 new jobs and helped safeguard a further 145.

More recently there has been a number of inward investment announcements such as the Australian company Clough, which has announced plans to create 110 jobs in Scotland and Japanese company Howco which has plans to create 67 new jobs.


AppEnDIx – A BRIEF REMInDER OF ThE SECTOR In 2012



Global production, output and pricesTo give context to the findings described in the report it was deemed important to look back to 2012 and consider the results against the overall performance of the sector.

2012 saw an increase in global oil production5 at 75.72 million barrels per day (b/d), up 2.9% from the 2011 rate. Changes across the globe for the top producers were:

• Russia, 10.45 million b/d, up 1.2%

• Saudi Arabia, 9.96 million b/d, up 6.6%

• USA, 6.33 million b/d, up 11.9%

• China, 4.08 million b/d, marginal increase

• Canada, 3.095 million b/d, up 6.6%

The increase in outputs are partly reflected in our analysis of where Scottish companies were delivering international activity.

Over this period we saw significant increases in unconventional gas plays in the North American markets. For example, during 2012 shale gas as a share of total natural gas production was 39% in the United States and 15% in Canada6.

Production in the OPEC region (Organisation of the Petroleum Exporting Countries)7 grew following a significant (and continuing) period of uncertainty and war. Growth was not universal and significant reductions came from Syria (46.6%) and Yemen (11.2%) with North-sea output also declining.

In terms of exploration global opportunities were significant. Examples of major finds included those in Mozambique and Tanzania waters of around 100tn cubic feet of gas, equivalent to nearly all of the gas reserves from Iraq8.

Worldwide, 2012 saw oil prices being maintained at around $110 per barrel, although the West Texan intermediate index saw a small fall, this plateauing of prices followed several years of strong growth.

5 Oil & Gas 3. Journal’s annual Worldwide Production report6 US Energy Information Administration 7 OPEC member countries include: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates

and Venezuela8 Financial times


Figure 20: Spot crude prices

2009 2010 2011 2012$60

$70

$80

$90

$100

$110

$120

Dubai $/bbl Brent $/bbl Nigerian Forcados $/bbl West Texas Intermediate $/bbl

While prices appeared to plateau there were fluctuations across the year with Brent crude peaking at $127 in May during the Arab uprisings from a low of $93 in January.

Successful international exploration and a steady oil price was being reflected in domestic surveys on international and transaction activity. For example:

• E Y’s global Oil & Gas transactions9 review reported Oil & Gas transactions increased by 19% from 2011 with oilfield services being the fastest growing sector fuelled by high value transactions in African markets

• A GCC’s own domestic survey10 results showed that contractors remained confident that international opportunities existed although this showed a small decline from 2011 forecasts.

The uKCSIn the UKCS businesses were realising significant opportunities arising from near record investment. In 2011 investment was reported to be in the region of £8.5bn increasing to £11.4bn in 201211, the highest for three decades. This further increased to £14.4bn12 in 2013 with forecast investment of £13bn in 2014.

Confidence was high during 2012 because continued investment was expected in 2013 (which was subsequently realised). While investment was high production continued to fall leading to a reduction of around 35% in production taxes.

September 2012 saw the announcement of a new brownfield allowance, a small field allowance and West of Shetland allowance to support the extension of existing fields and the delivery of new fields given permission after 31 March 2012.

9 EY10 AGCC Oil & Gas Survey11 Oil & Gas UK Activity report12 Oil & Gas UK Activity report 2014


In 2012 a total of 65 exploration and appraisal drills were completed13 and table 9 summarises field approvals in the UKCS during 2012.

Table 9: Field approvals 2012.

Field Approval Date Operator at time of approval Type of field

GODWIN Jan-12 Talisman Oil

KATY Feb-12 ConocoPhillips Gas

ALMA Mar-12 Enquest Oil

CONWY Mar-12 EOG Oil

RHYL Apr-12 HRL (Centrica) Gas

STELLA Apr-12 Ithaca Oil

SOLAN Apr-12 Premier Oil

JULIET Jun-12 GDF SUEZ Gas

KEW Jul-12 Centrica Gas

CYGNUS Aug-12 GDF SUEZ Gas

FIONN Aug-12 Valiant Oil

LEMAN SOUTH Sep-12 Perenco Gas

GALIA Sep-12 Enquest Oil

SHAW Oct-12 Talisman Oil

CORMORANT EAST Nov-12 Taqa Oil

BARRA Dec-12 Dana Oil

HARRIS Dec-12 Dana Oil

SOLITAIRE Dec-12 Nexen Oil

Source: UK Government

Some further detail on the above fields and other major developments during 2012 are summarised below.

• T he Stella field came on line after an appraisal in 2010. Petrofac secured the contract to deliver the development plan to DECC. The Harrier and Hurricane fields are located nearby and in 2012 a plan was made for these to be tied back to an FPSO. GE Oil & Gas delivered the sub-sea trees, controls and wellheads for the project14. EPC Offshore were commissioned to provide project management of the subsea and pipelines elements of the development in a contract worth around £2m.

• A m ajor development at the Cygnus gas field was initiated by GDF Suez E&P. This project was valued in 2012 at around $2bn with fabrication contracts being committed to Heerema. This field was the largest find in the Southern basin for around 25 years15 and in October 2011, AMEC was awarded the front end engineering and design (FEED) contract for the field to be delivered in 2012 with a further contract also secured in August 2012 worth around $90m.

13 Delloite’s14 Offshore Technology15 Rigzone/GDF Suez E&P


• F ebruary 2012 saw a major contract awarded by BP for the Clair Ridge project. The contract won by Subsea7 included the management, engineering and installation of 3 mile and 9 mile long pipelines16.

• E nquest moved into main ownership of the Kracken field in 2012 following a successful drill in 2011. The company also moved the development of their Galia redevelopment forward awarding a major contract to Technip in June 2012.

• A pache purchased the Beryl field in early 2012 with a view to upgrading and developing the field to enhance production levels17.

• I n May the Athena Oil Field located in the Outer Moray Firth was brought on stream by Ithaca with processing undertaken via an FPSO operated by BW Offshore.

• D ana petroleum drilled a successful appraisal well in August 2012 in the Platypus field.

• T he leman field began its development phase and moved to completion and in late 2012 a pipeline and umbilical was installed for Perenco Oil & Gas to be tied in by Bibby Offshore with a view to beginning production in mid-2013.

• A m ajor field development plan was submitted by Shell in 2012 for the Fram field, this included the use of an FPSO. A $135m contract was awarded by Shell to Subsea7 for activity including engineering, fabrication and installation of a pipeline and tie-ins.

• O ne of the largest announcements in 2012 was the sanctioning of the Mariner development with plans approved by DECC in February 2012. The announcement in 2012 has led to significant numbers of jobs being created in the North-east with Statoil now delivering the $7bn investment.

In 2012 we also saw a major development in the decommissioning environment. CNR successfully submitted an application to cease production which was approved in 2012 for the Murchison field. As this Scottish Enterprise / AGCC survey moves through future periods the ‘review of the year’ will invariably include more investment in decommissioning activity such as that at Murchiston and the Brent field.

It is clear that 2012 was an exciting year in the UKCS although in hindsight it was also a year where we started to see some of the challenges which are now more readily spoken of including increasing costs, challenges associated with production efficiency and successful exploration in addition to falls in production.

16 Subsea IQ17 Current and Future UKCS Oil & Gas Projects, DECC


The Research Unit at Aberdeen & Grampian Chamber of Commerce are delighted with the results of the research. The findings are great news for the Oil & Gas sector in Scotland and mirror what AGCC members are telling us about the increasingly important role international activity has in their business. The sector is not only an economic driving force domestically with record investment in recent years but is now a critical part of our export driven economy. Most of all I would like to thank the businesses who contributed to the research, we could not have delivered the work without their support. I’d also like to thank the team at Scottish Enterprise and we are already looking forward to working on the 2014 study.

James Bream Research & Policy Director AGCC


Important Notice

Whilst we hope you find the contents of this publication interesting and informative the contents are intended solely to provide general information only and should not be relied upon. The information does not constitute professional advice and should neither be regarded as comprehensive nor sufficient for making decisions. In addition, the content of this publication does not constitute a contract between us nor an offer by us.

While we have made every attempt to ensure that the information contained in this publication has been obtained from reliable sources, Scottish Enterprise accepts no responsibility for and excludes all liability for damage and loss in connection with the use of the information or expressions of opinion that are contained in this publication including but not limited to any errors, inaccuracies, omissions and misleading or defamatory statements, whether direct or indirect or consequential. Scottish Enterprise accepts no responsibility for the results obtained from the use of this information. Whilst we believe the contents to be true and accurate as at the date of writing we can give no assurances or warranty regarding the accuracy, currency or applicability of any of the content in relation to specific situations or particular circumstances.

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SE/3996/Apr14

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