Which are the best positioned oilfield service companies towards 2017?
RYSTAD ENERGY PRODUCT HIGHLIGHTS Oilfield Service Databases • DCube (Demand Database): Historical and forecasted opex and capex for global oil and gas fields, split on supplier segment and geography
The latest DCube version (August 2014) is based on 27,000 updates since the previous month's version. The spending growth CAGR towards 2020 has decreased with 25 basis points.
• SCube (Supplier Database): Reported revenue from oil service companies split on the same supplier segments and geographies as DCube
The latest SCube version (July 2014) includes updated 2014 growth and market share information. SCube now includes the reported revenue for 322 of the largest service companies.
• RigCube (Rig Demand & Supply Database): Global, offshore rig demand (rig count) and supply based on bottom-up, field-by-field activity analysis
As per our latest RigCube version (August 2014), we continue to see a challenging environment for floating drilling services, where 2014 demand is down with 3 units to 264 units. 2020 demand is now estimated to be 426 units.
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As E&P companies play out their lower cards, it is interesting to see subsea service companies to come up trumps. Companies like FMC, Subsea 7 and Cameron are expected to ride the subsea wave with a market growth of ~10%. They are by far the most attractive companies in terms of revenue growth towards 2017. Seismic and EPCI companies are viewed as less favorable in 2014 and 2015, but are expected to see a boom in 2016 and 2017.
The reduced pace in the global E&P activity has taken its toll on the capex and opex budgets of oil and gas companies that now need to put a stronger emphasis on their free cash flow and dividend policies. The growth rate of E&P companies’ purchases in oil field services dropped from 15% to 4% in 2013. A 4% growth is expected in 2014 and 2015, which translates into pure activity growth of 1-2% over these two years. A cyclical rebound is first expected towards 2016 and 2017 as E&P companies will need to ante up to accelerate their development of new reserves.
By analyzing all the E&P companies’ budgets broken down to their portfolio of fields, and the scheduled demand for services and equipment, it is possible to derive the growth for different service segments year on year. Figure 1 shows us that the demand for subsea equipment, SURF and other subsea services will grow the fastest towards 2017. This is heavily due to the large floater and tie-back developments in Brazil, Nigeria, Angola and Indonesia. Deepwater offshore drillers will continue to suffer under the oversupply of floating drilling rigs and reduced utilization and rig rates. The well services and commodities market show a stable growth of about 5%, with North American shale demand leading the way in the short term, and offshore taking over in the long term. Seismic companies will be worst positioned in 2014 as exploration budgets are the most flexible to cut, but we see a large upside into 2016. The engineering, procurement, construction and installation market will also see a rebound into the end of the period as offshore projects in South East Asia and Brazil will be sanctioned. The market for maintenance and operational support shows steady growth as operational budgets are more or less locked and only limited operational efficiencies can be achieved.
Having identified each service company’s business segments and geographical exposure, Rystad Energy matches the fundamental demand for each service segment in each country and adds the year-on-year growth to that particular business segment of the service company. Aggregating the results provides the most likely revenue growth for each service company assuming constant market shares. Not surprisingly, companies with a large share of their revenue originating from the subsea market are set to grow at an annual rate close to 10%. FMC has turned up trumps and comes out as the market leader, while Subsea 7, Cameron and Technip follow suit with slightly slower growth due to more EPCI exposure. Halliburton, Schlumberger and Baker Hughes are growing faster than the average market for well services and commodities. They play their strongest suit in the international markets and pick high growth markets like onshore North America and the Middle East. Seadrill is superior over Transocean due to its favorable contract situation and newbuild programs. The compounded average growth for all oil field service purchases in this period is 5%, and without a strategy change or an increase in market shares we see that PGS, National Oilwell-Varco, Wood Group, Weatherford and CGG Veritas will be dealt bad hands.
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy advisory and research products for E&P and oil service companies, investors and governments. We are headquartered in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), for Africa as well as South East Asia.