Global Oilfield Services – Price Pressure and Lower Activity for 2016
As 2015 draws to a close, Brent oil prices have plummeted to eight year lows on the back of OPEC’s latest refusal to cut production. The problems in the oilfield services sector as a result of low oil prices have been much publicised. Schlumberger’s recent third-quarter results indicate a 33% revenue drop on the previous year, while Halliburton and Baker Hughes have seen 36% and 39% decline respectively. Falling drilling activity has been compounded by falling prices across services – from rig & crew to casing and tubing. DW’s World Oilfield Services Market Forecast shows a 39% decline in Capex in the sector, with North American expenditure falling some 55% in 2015.
Looking to 2016, little recovery in the OFS sector is expected, largely as a function of continued drilling and production adjustments based on OPEC’s position. North American operators and service providers spent much of 2015 relying on crude hedges to reduce losses. The majority of these have now expired, with any remaining hedges expected to expire in the first half of 2016. Post-2016, stronger growth is expected as oil prices stabilise, however 2019 expenditure in the region is not expected to recover to 2014 levels.
The Middle East, on the other hand, will see strong growth through the forecast period after a pricing-led decline of 17% in 2015. Saudi Arabia’s drilling outlook remains positive, while efforts to maintain high flow rates from producing assets will boost brownfield expenditure. Furthermore, the lifting of Iranian sanctions will allow for IOC investment and the expansion of the major OFS firms into the market in the medium to long-term. Despite continuing unrest in Syria and Iraq, DW expects an average OFS spend CAGR of 7% in the region through to 2019, finishing the forecast period 11% above 2014 levels.
Offshore OFS expenditure has been relatively less affected by 2015’s oil price downturn, largely due to a number of rigs being locked into long-term contracts. However, DW expects MODU rig day rates to continue to fall to 2017 as contracts expire. Post-2017, a lack of projects sanctioned in 2015-2016 will restrict growth, particularly in West African deepwater plays and the Brazilian pre-salt.
DW expects operators to continue to shift focus to more complex completions and longer laterals, with increased up-front planning and engineering. Growth rates for drilling and completion related services such as drill bits, directional drilling services and completions equipment will therefore be some of the largest in the OFS sector. Likewise, services aimed at increasing production from existing assets will see solid growth, such as stimulation, surface well testing and coiled tubing services.