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For Oil and Oil Field Service 2016 is tough RYSTAD

Posted on December 13, 2016 at 3:30 PM
2016 has been a tougher year for most service companies than 2015, and revenues have continued to fall as much as 27% when compared to 2015 on average. Companies exposed to onshore North American activity have seen their revenues diminish even more. While 2015 was the year that service companies built alliances, 2016 was the year that saw service companies starting to consolidate fully. We have seen many mergers and acquisitions happening, with TechnipFMC and GE-BHI as the frontrunners. Other service companies have started to unlock their own potential by completing the organizational and operational changes that were initiated last year. The overall workforce reductions in the service industry are looking likely to cease in the first half of 2017. 2016 has also seen several companies becoming insolvent or have been dissolved. In North America alone, more than 100 service companies have filed for bankruptcy. Service prices continued to fall, which forced service companies to think about new contractual set ups. Risk and profit sharing have been instruments used to improve these company’s margins. Two weeks ago, news that the oilfield service industry was hoping for was announced. The OPEC-members, supported by Russia and other non-OPEC members, agreed to a target production rate of 32.5 mb/d in order speed up the drawdown of stock overhang in the hopes of balancing the market. With revenues down 30-50%, these OPEC-cuts will deliver a lifeline for many. Since oil prices are expected to average at 60-65 USD/bbl for 2017, following the productioncuts, E&P spending will react accordingly. Within OPEC, the service market will only be marginally affected. Production cuts will be initiated at producing fields and the cost for brownfield services is expected to stay flat. The drawdown of purchases is related to the completion of the offshore development of Upper Zakum in the UAE. The largest reaction will be visible for non-OPEC shale exposed service suppliers. It is estimated that as much as 15 USD billion of additional spending will flow into the market for drilling contractors and well services, assuming 10,000 wells are drilled and completed. Though offshore suppliers should not expect to see their revenues increase next year, the volume of projects rolling over along with deflation in the industry, is still larger than the uptick of new FIDs and contract awards. The EPCI and subsea segments will therefore get reduced and in total, the offshore market will be reduced by 19 billion USD in 2017 compared to 2016. Next year will follow a lot of the trends seen in 2016, with more market consolidation and tighter collaboration between service companies and operators. OPEC production cuts will turn the needle on the FID for many projects in shale and offshore, which will generate more transparency on future activity and revenue.

Categories: Management

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