ОБЪЕДИНЕНИЕ ЛИДЕРОВ НЕФТЕГАЗОВОГО СЕРВИСА И МАШИНОСТРОЕНИЯ РОССИИ
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Вторник, 09 апреля 2019 09:02

Rystad Energy: Oilfield Service Newsletter - April 2019 - eng

State of the drilling and well services industry

Drilling and well service companies experienced abrupt revenue declines from 2014 to 2016 due to the plummeting oil price. Alongside a declining number of new wells being drilled and completed, the companies’ combined revenues dropped a staggering 44% in two years before the industry bottomed out in the third quarter of 2016.

From 2016 to 2018, global drilling activity began to rise again, driven by unprecedented growth in North America. Likewise, demand for services has also begun to pick up, especially for shale-focused oilfield service providers. In contrast, the road to recovery for providers focusing outside North America has gotten off to a slow start.

One of the most common metrics to assess the health of a market is to consider the aggregated revenues of companies in the industry. Figure 1 shows the combined quarterly revenues for 76 of the top drilling and well services companies which have reported their annual results for 2018 so far. Although we saw a generally positive trend from 3Q 2016 towards 2Q 2018, where revenues grew at an average quarterly rate of 3%, we now see a slight disruption; a 2% revenue decrease in 4Q 2018.

The change is not dramatic, and the decline was driven by a sudden $30 per barrel drop in oil price. We have seen a similar decline in 1Q 2018, which reverted to growth the following quarter. This time, however, we expect to see growth rates strained into 2019 as several E&P companies in North America are now guiding their investments flat or downwards.

The current state of the drilling and well services market is nuanced and we see variations across the various service segments and regions. One key discussion that has received extra attention recently pertains to the North American land market versus the international market. There has been a wide variety of strategic approaches to this matter, with some service companies seeking balance between the markets whereas others have chosen to focus their efforts wholeheartedly on one of the two segments while entirely disregarding the other.

In recent years, the North American land market has been driven by the production of shale and tight resources. Many wells need to be drilled in order to develop these resources and, due to the short lead times, the North American market has been quick to react to improving oil prices. The international market, on the other hand, is comprised of conventional resources with longer development lead-times. The effect of this is evident in Figure 2, which illustrate North American and international drilling and well service revenues separately. Here we see on the one hand that international revenues were less affected by the downturn in 2014 to 2016, but on the other hand, we see that the highest growth rates – recorded during the recovery period from 2016 to 2018 – comprised revenues generated in the North American market.

Conversely, international markets have maintained flat revenues and service providers have struggled to revert to consistent growth as international investments by E&P companies have remained low. Looking back at the second half of 2018, an interesting trend emerged as North American revenues were immediately slowed by the weakening of the oil price, while the international market maintained its gradual growth trend.

Looking ahead, we expect the price of Brent crude to remain in the range of $60 to $70 per barrel, and that the number of wells being drilled will stabilize around 2018 levels in the short and medium term. Many shale-focused E&P companies have guided their investments flat or down this year as they aim to focus on improving their free cash flow. Contrarily, we expect that internationally-focused E&P companies will increase their investments after a period of low investment, and focus on maximizing free cash flow. We anticipate a return of offshore investments as project sanctioning activity has picked up considerably over the past couple years, and numerous projects will soon enter the development stage. In addition, many E&P companies have experienced negative reserve replacement as an indirect result of cost-cutting during the downturn, and those players will need to increase exploration expenditure in order to flip the trend.

We expect international drilling and well service revenues to maintain a gradual increase as investments return, while the North American providers can expect reduced growth potential as E&P companies are indicating new market strategies in a bid to please investors.

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