2019 ends on a low note, offering a gloomy start to 2020

December 2019

2019 ends on a low note, offering a gloomy start to 2020 


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The global oilfield service market saw year-over-year revenue decline 3% in the third quarter this year, the first quarter to post negative growth since 2Q 2017. Moving into the fourth quarter, service companies are reporting that operators have little budget left, hinting that 4Q will be sluggish. This could make for a dissatisfying new year, as the 1% trailing twelve month growth rate could be disrupted by even a slight revenue decrease in 4Q 2019, potentially pulling growth below the zero mark.

Rystad Energy expects that US shale operators will continue to reduce investments through the third and fourth quarter. We forecast that 2019 US shale investment numbers will clock in 6% lower than the highs of 2018. The ramifications of this investment reduction have already materialized for service companies in the US, who are experiencing reduced work and pressured pricing. Halliburton recently announced the dismissal of 800 jobs in an attempt to cut costs, perhaps signaling that the company expects US activity to remain constrained. Rystad Energy expects 2020 will continue the trend of reduced US shale investments, and estimates that service purchases will fall 7% compared to 2019, suggesting that US service providers will face a challenging market next year as well.

Offshore and non-shale land activities will see a brighter 2020. In 2019 around $200 billion worth of projects were sanctioned, a number which Rystad Energy forecasts will grow to as much as $225 billion in 2020. Gas projects will drive most of this growth, with $50 billion worth of contribution from onshore LNG. Offshore project sanctioning may also see some positive numbers, with more than $100 billion worth of sanctioning in 2020. This will keep offshore service purchases flat in 2020, before the wave of projects matures into execution mode, driving purchases up 5% and 7% in 2021 and 2022, respectively. The land market will also get a boost, albeit further in the future once expected LNG projects have entered the most intense construction period.

In terms of purchases by service sectors, we expect the total service market will contract 2% in 2019 as the result of the cuts made in US shale. As 40% of the global well service and commodities market is comprised of shale activities, the sector will deflate the most in 2020, falling from $225 billion down to $213 billion by year-end. Better performance is expected in the subsea sector, where the market will grow from $25 billion to $27 billion. As many as 330 christmas trees have been awarded in 2018 and 2019, a number which is also expected in 2020.