Services firms flag tough North Sea conditions
OREANDA-NEWS. Oil services companies working in the North Sea continue to face squeezed margins as field operators continue to reduce activity in the mature region.
London-listed Wood Group and Cape today said the operating environment in the area is "tough" and "challenging", respectively, and both companies said they remain focused on cost control.
North Sea output, and therefore the business of providing support to production companies, is particularly exposed to the fall in oil prices as recovery costs are high. A number of smaller fields in the region have already been closed as they have been left unprofitable. And a prolonged spell of lower prices may influence future investment decisions — a second phase of development at the Nexen-operated Buzzard field, and Chevron's 100,000 b/d Rosebank development are two larger projects mired in uncertainty. In the near-term, the need to cut costs raises the risk of industrial action.
But there is a brighter outlook for the services companies in the Middle East. Cape said market conditions there are expected to improve in the second half of the year, with "robust" activity in Saudi Arabia, and increased activity in Oman and Kuwait. Wood Group's PSN division, which provides life-of-field support, benefited from new contracts in Iraq. Both companies enjoyed ongoing business in the Australian LNG sector.
Wood Group said it anticipates a 20pc fall in operating profit for the year as a whole. Cape said its outlook for 2016 remains unchanged, with levels of activity anticipated to increase as the year goes on.