How is the ‘oil and gas’ services sector evolving to support the energy transition?

While the adverse impact on investment in the UK oil and gas sector arising from economic uncertainty and windfall taxes has been well documented, the exploration and production (E&P) sector is only part of the story in UK oil and gas. 

What about the service sector that has supported UK E&P for the last 60 years? According to Offshore Energies UK’s (OEUK) estimates, almost 120,000 jobs in 2022 were supported directly or indirectly by our UK upstream oil and gas industry, with a further 60,000 jobs supported in the wider economy.

The dynamic nature of the oil and gas industry has long meant that the service sector is grounded in its ability to solve problems, innovate and develop new technologies. When faced with a global oil and gas downturn, a global pandemic, economic uncertainty and the war in Ukraine, it’s no surprise that the service sector would prepare itself for the next generation of challenges that come with energy transition. As specialists in supporting mid-market businesses in the oil and gas industry, this is precisely what we are seeing in the UK oil and gas services sector.  

Repositioning

While the energy transition has become highly politicised with polarised views on the future of oil and gas, businesses in the service sector are embracing the challenges of the energy transition and pivoting to address them in the medium to long term. The key boardroom topic is ‘strategic planning’, with a focus on moving away from being an ‘oilfield services’ business and instead, moving towards servicing the energy sector. In some cases, the focus is on becoming a ‘molecules’ business, be those molecules crude oil, natural gas, hydrogen, CO2 or others. 

Diversification

We are seeing increased product and service development focusing on new energy markets, both organically and from a merger and acquisition (M&A) perspective. Traditional financial KPIs, such as EBITDA, are no longer the sole focus in these businesses, with Environmental, Social and Governance (ESG)-related measures becoming increasingly prevalent alongside financial benchmarks. 

With the downturn in investment activity in the UK, our clients are looking to develop their products and services, whether that is servicing offshore wind projects on the eastern seaboard of the US, solar projects in the Middle East, or providing transferable expertise to other parts of the world.  

A positive outlook

All of this adds up to a positive outlook for the service sector. Order books are filling up rapidly, budgeted results are on an upward trajectory and passports are being dug out to pursue new markets and opportunities as the global service sector continues to recover from the pandemic.  

Resource challenges

Along with the positive outlook come resource challenges. Some of these are traditional, due to the cyclical nature of the sector and an ageing workforce, while others are new in a post-COVID work environment. The adaptability of the service sector stems from the adaptability of its workforce. Core skills developed in the UK oil and gas sector are highly transferable around the world in what is now a global labour market. Coupled with this are increased expectations around hybrid working in a post-COVID world, leading to new challenges.

For example, if an employee located in Scotland can operate a remotely operated vehicle to perform a survey of the Taiwanese seabed prior to a windfarm installation, can your financial controller work from their parents’ home in Spain for the summer? Can your commercial director be permanently based in Switzerland? These are the types of questions our clients are facing, which come with a host of challenges from a legal, tax and cultural perspective.

In summary, we see the service sector adapting to change and the energy transition in a global market on an upward trend. Will the leakage of value and resources to other parts of the world continue, or can the UK create a more attractive investment horizon to retain and attract resources from other parts of the world?

How RSM can help

RSM is a leading audit, tax and consulting adviser to mid-market business leaders. We work with a wide variety of clients in the oil and gas service sector across the UK and globally.  

We can support your business with the following key areas of expertise:

• global network/capabilities;
• global mobility support;
• ESG consulting; and
• setting up/expansion overseas.

Please contact Grant Morrison to discuss how RSM can support your business.