The North Sea oil and gas industry came “back from the brink” last year – according to a new report.

The UK oilfield services (OFS) sector reported a decline in turnover for the second consecutive year, from £35.7 billion in 2015 to £30.2bn (down 15.5%) in 2016, the last full year for which figures are available.

Figures for 2017 are also expected to show a decline when they become available, but the outlook for 2018 is more positive.

There were reductions across each of the supply chain categories – facilities, marine and subsea, reservoirs, support and services and wells – EY’s Review of the UK Oilfield services industry said. The report said demand, both from the UK Continental Shelf (UKCS) and overseas locations, continued to be affected by the lower oil price restricting capital budgets and discretionary spend, leading to oversupply and intense pricing competition.

However, the report warns that the industry’s approach to recovery in 2018 could prove critical for long-term success.

Andy Brogan, EY Global Oil & Gas leader, said: “While 2017 is the year that the oil and gas and the OFS sectors came back from the brink, the OFS market is likely to remain challenging for the foreseeable future, and only those who can build and defend competitive advantages are going to deliver the returns their stakeholders expect.”

The majority of UK OFS companies experienced a difficult 2016 with less than 2% achieving growth in excess of £10 million, the report said.

However, there were companies that grew as a result of acquisitions, growth in overseas activity or diversifying into other sectors.

Export figures show a slight increase in activity with exports as a percentage of turnover from UK OFS companies rising from 40% in 2015 to 41% in 2016.

Derek Leith, EY partner and head of Oil and Gas Tax, said: “The industry is entering a more positive environment where oil price is rising and production is increasing as a result of both improved efficiencies and new fields coming on line, but this cannot give licence for old habits to creep back in.”