August 2015

Oil and gas recession and service companies’ depression

Products Webinar

Rystad Energy product overview on E&P, OFS, Shale and NCS products
Date:  August 18, 2015
Time: 5:00pm CEST

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Rystad Energy Rig Webinar

“Floater market facing challenging times, retirements to reach historical high”


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Rystad Energy OFS Webinar

"The search for price cuts in the oilfield service industry"


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Oilfield Service Databases
• DCube (Demand Database): Historical and forecasted opex and capex for global oil and gas fields, split on supplier segment and geography

In the latest DCube version (June 2015) short term oilfield service purchases are expected at -8.8% CAGR for 2014-2016. Largest market contraction expected in EPCI.

• SCube (Supplier Database): Reported revenue from oil service companies split on the same supplier segments and geographies as DCube

The July 2015 version of SCube shows that the announced spend by E&P companies have materialized into -18% revenue decline in the first quarter of 2015 compared to last quarter of 2014. Worst is it for companies exposed to North America where first quarter is down with -25%. 

• RigCube (Rig Demand & Supply Database): Global, offshore rig demand (rig count) and supply based on bottom-up, field-by-field activity analysis

The June 2015 RigCube version shows a decrease of 26 units in floater demand from 2014 (262) to 2015 (236). Jackups to be decreased with 36 units from 2014 (408) to 2015 (372).


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As revenues are falling drastically for most of the service companies, we see all companies fight heroically to cut their costs faster than the revenue is decreasing, to secure stable margins. One dramatic consequence is the numerous lay-offs in the service industry, which are now approaching the levels of 2010.

Figure 1 depicts the full-time-equivalents (FTE) of workers in the top 30 service companies with declared cuts in their work force. These companies had an aggregated 250 USD Billion in revenues and about 730,000 employees in 2014. As E&P spending rose significantly by 10% annually from 2010 to 2013, so did the number of people employed in the service industry. Growth in revenues and manpower was key to maintain and increase market share in a growing market. In some regions it was challenging to find qualified people such as geologists and petrophysicists. As a consequence, labor costs increased and helped to fuel the cost escalations in the industry. After years of extraordinary growth of employees and costs, E&P companies were set to do something as the oil price was more or less stable. 2014 showed that activity was coming down as E&P companies started to preserve cash. When the early signs of the falling oil price were evident in the last half of 2014, companies were forced to perform larger organizational improvements in their work stock. So far into 2015 there have been announced lay-offs close to 13% of the work stock at the largest service companies. Assuming that these lay-offs are very much representative for the rest of industry, we would expect the top 400 service companies to cut as much as 200,000 workers over the period of 2015-2016. Important to note is that the cut in the workforce will not be pure cuts of full-time employees, but will also be effectuated by natural turn-over (retirements and resignations), less recruiting and reduced contractual workers.

In the North Sea, there has been substantial media focus on the large cuts in the service industry. The offshore sector in this mature basin is being highly impacted by low oil prices, and activity has slowed down dramatically. More than 400,000 people are employed in Norway and the United Kingdom in the service industry and the announced reductions are close to 40,000. Breaking down the cuts in Norway down to segments reveals that most of the cuts are within Maintenance and Operations, which is also the largest cost contributor for E&P companies in the North Sea. Here we see Aibel and Aker Solutions being impacted by imposed MMO scope reductions and efficiency programs. The EPCI lay-offs are close in size to the lay-offs in Maintenance and Operations. Recent EPC awards to Asian yards and few new platforms in sight, enforces Norwegian EPC contractors to reduce their staff significantly.

Even though the workforce is cut dramatically in the service industry, it is a necessary means to streamline the business, increase the efficiency and bring down the cost of oil and gas activities after years of unsustainable growth. However, it is important that the competence is kept and that ambitious talented young people are let into the industry. Because the market will pick up again as it always does after recessions.