After years of rising costs followed by a total collapse in oil price, the global oilfield services purchases are set to see a record decline of 18% in 2015. This is double the decline following the financial crisis in 2009. The lack of willingness to sanction new projects and commit to exploration activities under the current oil price regime is the main driver behind the observed cuts, and investments alone will come down 22% in the current year. The resilience of each of the segments in the market for oilfield services highly depends on contract backlogs. Which segments have proven most robust during the downturn, and which will benefit the most when the market starts to recover in 2016?
Seismic and well services and commodities are the segments with the hardest fall in 2015, but also the softest landing in 2016. Little backlog in seismic purchases and short contract duration in unconventional well-related services have opened up for purchase cuts of 22% and 24% for the two segments, respectively. However, the same two segments are likely to see a modest decline of one and three percent next year as we expect the market for oilfield services to bottom in 2016. This is not the story for subsea, which is the only segment that will worsen come 2016, as scarce backlogs become a reality. In addition, as many development projects have become uncommercial, the market for EPCI faces the biggest decline among all oilfield service segments next year.
The September downward revision of Rystad Energy’s oil price curve still shows that an oil price of USD 50/bbl is not sustainable after 2016 as more supply is needed to meet demand. This necessary increase in liquids supply is the underlying driver for the strong recovery of the E&P sector. We anticipate an average annual growth rate of 8% in oilfield service purchases after the turning point in 2016. With a real oil price of USD 100/bbl in 2020 we will again see purchase levels in line with those of 2014.
The segments that will experience the strongest growth after 2016 are seismic, EPCI and well service and commodities. Well-related services and the seismic segments are the first to recover from the downturn with a substantial growth already in 2017. In the offshore markets, drilling contractors and subsea will still see negative growth in 2017 before these markets turn upwards in 2018.
The increase in oilfield service purchases towards 2020 will mainly come from growth in offshore deepwater and unconventional onshore. We expect large projects in Brazil, Gulf of Mexico and West Africa to drive the increase of oilfield service purchases in the deepwater market leading to a strong growth for subsea and EPCI contractors. On the unconventional side, the North American shale industry will once again experience high growth numbers and this market will be the key driver for the increase in well-related purchases towards 2020.