The start of the oil price decline in mid-2014 led to a massive loss of revenue to both oil drilling companies and oilfield service providers. This was because the decline diminished exploration and production activities; confidence was low at that time in the future of oilfield services. Leading companies in this lucrative industry experienced a collective revenue decline of about 25 percent by the end of the second quarter of 2015. Further decline in prices forced many oil-producing and drilling companies to lay off most of their workers, and scale down their operations. Generally, between 2014 and 2016 the sector lost about $130 billion of its market capitalization.
However, the trend seems to be changing fast. There are signs of light at the end of the tunnel. The future of oilfield services is expected to change due to the recent trends, including the ones listed below.
This year, oilfield services companies are expected to see more benefits from the increased oil exploration and drilling activities than they did in the last two years. The increased exploration activities are likely to give oilfield service companies sufficient business in the coming years.
Companies such as Transocean, Diamond, ENSCO and Seadril, which were involved in deep water drilling, suffered heavy losses following a dip in oil prices. The average price per barrel in 2015 was less than $50, which was too low to allow most of these companies to cover their operating costs. It was observed that when the price averaged between $50- $70 per barrel, the number of deep wells increased by 17 percent. It is further expected that by 2020, the number of deep water wells will increase by 32 percent if the price per barrel averages between $60 and $70. As the price per barrel increases, so does the number of jobs for oilfield service companies.
It is true that the demand for services such as evaluating, constructing and maintaining gas and oil wells is steadily increasing as new wells are discovered across the world. For success in the future of oilfield services, outsourcing such services to oilfield companies guarantees additional income.
The new efficiency gains made in North America and the tight oil developments have made the region resilient. The operators have gained experience and are using improved technology to lower the cost and to cushion companies from the falling prices. Note that in 2014, companies needed to sell their oil at $75 a barrel to break even. However, at the start of 2017, matters changed due to new efficiencies and advanced technology which allow companies to break even at a price of $55 per barrel.
The emerging markets and the reopening of closed and abandoned wells are expected to provide new opportunities for oilfield service providers. Already, there are exciting potential growth opportunities in more than 20 countries worldwide. Saudi Arabia is expected to purchase more from oilfield services companies to help to maintain its production capacity. Turkmenistan and Egypt are also planning to buy more from these providers. Mozambique’s purchases will double as the country ventures into offshore gas development.
Already, the offshore service market is experiencing growth following a $13 billion investment in the undeveloped fields. Chinese companies have received invitations to provide oilfield services in Yagavaran and Azadegan oilfields. Also, the development of new oilfields in Aryandah and Azadegan guarantees oilfield service providers a great market for their services.
As the industry emerges from an environment characterized by low prices, oilfield service providers are under pressure to create efficiencies and operate with sustainability in mind. Companies must pursue the right technologies that reduce wastage of scarce resources to have a competitive edge.
Moreover, to be competitive in the future of oilfield services, it is important to look beyond the cost-cutting measures to help lower their customer’s costs. This could be achieved by adopting and utilizing more efficient technologies and processes. In addition, they must be prepared to charge their clients less. Already, most of the oilfield services companies have reduced their charges by 20 percent to help in reducing their clients’ cost and to cushion them against the 60 percent drop in oil prices.
In conclusion, it is important to note that offshore activities and production will be expected to rise steadily, despite the fact that the outlook is less certain. Operators are working hard to simplify their designs, and to lower the cost of engineering, so as to make it possible for producers to break even at a price of $50 per barrel. This way, oil field services companies will be able to thrive even in an environment that is characterized by low prices.
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