Article:The North Sea Oilfield Service Market - Dead or alive?
Article:Lowest offshore project commitments since 1998
RYSTAD ENERGY PRODUCT HIGHLIGHTS
Oilfield Service Databases
• DCube(Demand Database): Field-by-field coverage for the global oilfield service companies and their spending
In the latest DCube version (August 2016), oil market fundamentals points in the direction of a reduced oilfield service market. The short term market decline has been reduced to -6.5% CAGR from 2015-2017.
• SCube(Supplier Database): Detailed insights into revenues of the largest oilfield service companies
Q2 2016 version of SCube shows that revenues among service companies continued to fall in 2016 as Q1 2016 reported revenues were 16% lower than those for Q4 2015. The fall varied across service segments and geographies, causing large changes in the company’s market shares.
• RigCube (Rig Supply & Demand Database): Insights into historical and forecasted global rig supply and demand
There are still challenges in the MODU market. Q2 2016 RigCube version shows that demand for floaters in 2016 will decrease by 24% y/y. For jack-ups, demand will fall by 14% compared to 2015 levels.
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Two years down the road of the downturn in the oil and gas industry, service companies have faced significant pricing pressure from E&P companies. In the search of price cuts, oil and gas operators have turned over every stone of the service industry, but offshore suppliers are more “heavy” than shale and have not given away too much of their margins yet.
The service company’s activities related to shale have seen a tremendous drop in their margins due to the market downturn. In 2014, the average EBITDA-margin was at 17%, and in 2015 this turned negative. Pressure pumpers led the deterioration of the margins and onshore drillers along with other suppliers followed. Even though there have been some improvements of the margins for shale in 2016, E&P companies are still realizing 26% price cuts and 17% efficiency cost cuts for its drilling and completion activity in 2016 compared to 2014.
Suppliers to the offshore industry have fared better in terms of margins. From 2014 to 2016, margins have only fallen 6 percentage points. Some segments, such as offshore drillers have fallen much more, however, the offshore industry has shown remarkable resilience. In the nature of offshore, field developments take more time when compared with the shale industry. Contracts typically last longer due to the complexity and lead times for equipment and services. Due to longer lasting contracts, healthy project margins will aid the offshore suppliers in a depressing market. Looking at the offshore drillers, 57% of the active rigs this summer had their fixtures closed prior to 2015, before the oil price really plummeted. Many of these contracts were closed in Australia and Brazil by Petrobras. Turning over the stone of the greenfield subsea market in 2016 shows that as much as 73% of the spend is related to contracts awarded prior to 2015. Noticeable contracts that still linger on are Aasta Hansteen, Maria and Egina. For EPCI, the comparable number is 71%. Hebron, Upper Zakum and Nasr are sizeable greenfield contracts that are still running. The key driver of the margin decrease for Subsea and EPCI have been related the greenfield contracts awarded in 2015 and 2016 along with renewal and renegotiations of brownfield contracts.
Being exposed to the offshore service market, suppliers have had longer time to adapt to lower activity levels than their shale-exposed peers. They have been able to downsize their organization and fleet of assets fast enough to adapt to the declining market. The remaining people and assets are typically the “best in class”, which improves efficiency. In addition, they have been able also put significant pressure on their sub-providers in a timely manner to cut costs down the value chain.
Whether or not the margins for offshore and shale will hit rock bottom in the near future is rather unlikely. Service companies have taken severe measures and are closely monitoring the market development. In the case of increased demand for their services, they will focus on maintaining their cost base and improving their margins. In the search of cost excellency, E&P companies needs to work with the service companies and not against them.
Rystad Energy invites you to our Annual Oil & Summit 2016. Join us to hear about our latest analysis and outlook for the oil market, global E&P activities, oilfield services and North American shale. www.rystadsummit.com