How will the top 10 oilfield service companies be affected by the large E&P spending cuts in 2015?
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 guiding by E&P companies on activity and spending plans have resulted in a reduced short term outlook for oilfield services. Currently, the growth is expected to be at -7.5%.
• SCube (Supplier Database): Reported revenue from oil service companies split on the same supplier segments and geographies as DCube
The latest SCube version (March 2015) provides extensive details on the different service companies outlook. There is a significant spread in the revenue forecasts, and SCube is ideal to analyze quickly potential market consolidation such as the HAL+BHI deal.
• RigCube (Rig Demand & Supply Database): Global, offshore rig demand (rig count) and supply based on bottom-up, field-by-field activity analysis
The latest RigCube version (March 2015) shows a decrease of 13 units in floater demand from 2014 (262) to 2015 (249). Jackups to be decreased with 25 units from 2014 (407) to 2015 (382).
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E&P companies have increased their spending on oilfield services over the recent years with a record level just shy of USD 1 trillion in 2014. New field developments have been crucial to the growth in spending, but also increased exploration efforts and operational expenses have played an important role. The collapse in oil price has largely affected the capital plans of E&P companies, and we now expect the global purchases of oilfield services to decrease by 13% from 2014 to 2015. Simultaneously the oilfield service companies are directly impacted by decreasing revenue streams in line with E&P spending.
Figure 1: Global E&P spending from 2010-2016 by Capex, Opex and Expex
We have now seen the E&P companies announce large cuts in spending for 2015. Many development projects have been delayed or cancelled and we expect to see an 18% decline in investments in 2015. In line with this projection, we also expect a large reduction in exploration activity with spending cuts of 17%. In 2014, we witnessed a solid 6% growth of operational expenditure, which also proves to be robust this time around with only a 1% decline in 2015. The interesting question is therefore: How do the budget types drive the spending within the different oilfield service segments?
Figure 2: Global E&P spending y/y growth by service segments
In 2015, the hardest hit segments are Well Services and Commodities together with Drilling Contractors. After a modest growth in 2014, the spending in these segments is expected to decrease by 16% and 12% respectively due to large cuts in new developments and exploration efforts by E&P companies. This reduction is highly related to the cuts we are witnessing in the North American shale industry where we expect well related spending to fall by 35% in 2015. The subsea segment is the only one that is not facing negative growth due to contract backlogs. Furthermore, a reduction in capex will hit the EPCI market directly where we expect at 10% decline. As oilfield service companies are reporting 2014 revenue numbers, we turn to these companies to see how the E&P spending affect their current year revenues.
Figure 3: Revenue y/y growth for the top 10 service companies based on upstream revenues
The top 10 oilfield service companies experienced a 7% growth in 2014. In the current year, we expect the revenues for these companies to decline by 20% to BUSD 150 in total. With large growth numbers for 2014 due to their well service exposure, we expect Schlumberger, Halliburton and Baker Hughes to see a large drop in revenues with substantial negative growth in 2015. The reduction in spending on EPCI services will affect GE and Cameron where positive growth in 2014 turns to double digit negative growth for 2015. In 2014, Transocean faced a challenging rig market with negative revenue growth of 3.3 %. We anticipate furhter revenue decline by 22% in 2015.
There is no doubt that 2015 will be a difficult year ahead for the oilfield service companies. Nevertheless, we will once again see increased activity by the E&P players and we expect positive growth in the demand for oilfield services in 2017.
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.