December 2016

A tough year for service companies, but OPEC cuts help the shale exposed

Oilfield Service Solutions

Product webinar

Speaker: Audun Martinsen, 
VP of Analysis

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North Sea Suppliers - Dead or Alive?

Content webinar

Speaker: Audun Martinsen, 
VP of Analysis

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Article: OPEC cuts, shale positioned to grow with offshore continuing to be the victim


Article: Global liquids supply cost curve: New shale and oil sands are marginal sources of supply in 2020


RYSTAD ENERGY PRODUCT HIGHLIGHTS

Oilfield Service Databases

• DCube (Demand Database): Field-by-field coverage for the global oilfield service companies and their spending

The latest DCube version (December 2016) shows detailed response on E&P companies’ spending following the OPEC production target.

• SCube (Supplier Database): Detailed insights into revenues of the largest oilfield service companies

Q4 2016 version of SCube shows that 2016 has been worst for service companies exposed to the shale business. However, not all service companies or segments have been impacted to the same extent.

• RigCube (Rig Supply & Demand Database): Insights into historical and forecasted global rig supply and demand

In the November version of RigCube our RigFactSheet was launched. This is an automatically report that can be produced on single rigs with comprehensive technical specifications and historic track record.

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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 production cuts, 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.