The overall annual turnover of the UK’s oilfield services (OFS) industry fell from £40.6 billion in 2014 to £35.7 billion in 2015, according to a new report by EY.

The Review of the UK oilfield services industry  said that as the UK’s oil and gas sector begins to show signs of recovery, it is vital that the OFS industry makes a permanent shift in strategy from short-term survival to long-term success.

It said despite the decrease, the 2015 figure still represented a significant contribution to the UK economy and was the third highest annual turnover for the sector in the history of the EY report.

Although the data showed a decline in activity, the analysis indicated that the stablisation of the oil price in the $50 – $60 region and the early signs of new investment provided grounds for cautious optimism.

Derek Leith, EY Partner and head of oil and gas tax, said: “With the worst of the downturn over and signs of recovery becoming more prevalent, the UK oil and gas sector has reached tipping point with the supply chain playing a pivotal role.

“As such, the future viability of the oilfield services industry will be largely determined by the decisions and actions taken by leaders in 2017.

“It is essential that the hard-won benefits achieved by oilfield services companies as a result of the unforgiving low oil price environment, such as greater efficiencies and innovative approaches, are sustained and not abandoned as the oil price starts to recover.

“It may be that the current oil price will prevail for the foreseeable future, so the oilfield services industry must push beyond cost reduction to higher margin sustainable business.

“This needs to be characterised by new commercial relationships, new technology and innovation.

“The UK oilfield services industry demonstrated its credentials as a global leader by employing agility and courage during the last two years.

“There is now the potential to grow further both domestically and internationally, but these opportunities are unlikely to be realised unless strategies shift in focus from short-term survival to long-term success.”

The report said consolidation and strategic alliances looked set to become an increasing trend in 2017, particularly in high-cost areas of development such as marine and subsea.

Financial stress at some firms was also likely to force consolidation.

The report said there were positive signs that 2017 will attract more, but still modest levels, of capital expenditure.

Leith said: “It would be premature to suggest that capital expenditure is set to recover dramatically this year.

“As one of the world’s higher cost basins, a significant increase to exploration and development spend in the North Sea would be regarded as bullish in the current environment.

“Despite this, there are encouraging signs in the form of new sources of capital taking ownership of assets, including the eventual arrival of much anticipated private equity investment in the second half of 2016.

“Such investment not only shows faith in the long-term prospects for profitable recovery of oil and gas in the North Sea, it should also signal the arrival of some much needed investment to further improve productivity and reduce the operating costs of North Sea assets.

“Despite the decision by some of the oil majors to offload UK assets, new entrants have not been averse to acquiring assets with development potential, reflecting their belief that attractive returns can still be achieved over time.”

Leith said decommissioning would also offer the UK oilfield services industry an excellent opportunity to grow a significant line of business with huge export potential.

“Significant co-ordination, collaboration and support will be needed in order to help deliver an optimum decommissioning solution for the UKCS and to take advantage of an important export opportunity in the years to come,” he added.

“However, we need to start to view decommissioning in a different way.

“It needs to be integrated with ongoing oilfield operations and development activity as part of an integrated approach to maximising economic recovery and delivering value.”