Rystad Energy: Oilfield Service Newsletter - September 2019 - eng Избранное
Learning from the past to win the next decade
Those who do not learn from the past are doomed to repeat it. Spurred by the tantalizing notion of $100 per barrel oil, the start of the last decade set records for greenfield investments and service company revenues. However, this proved to be unsustainable when the price of oil collapsed from 2014 to 2016. Investments plummeted, recruitment was slashed, and the global balance of pricing power swung in favor of operators. To survive the downturn, changes were needed.
From 2010 to 2014, oilfield service companies saw their relative pricing power increase each successive year. To execute over $275 billion of annual greenfield work, operators were forced to pay a premium in the pursuit of first oil. Recruitment for the top 50 service companies grew by over 25% in just three years and, according to the Rystad Energy Price Inflation Report, service prices increased by 15% to 35% during this time period.
In the lower oil price environment of today, service companies have been in survival mode. Rystad Energy’s Service Analytics shows that from 2013 to 2017, the subsea industry was extremely active with mergers and acquisitions. While alliance forming was prevalent early in the downturn, a wave of mergers and acquisitions hit later in 2016. It was no surprise to see that margins for the top 50 service companies also fell by 6% from 2014 to 2017. However, driven by North American shale activity, well services and maintenance, and operations, service companies were able to grow margins in 2018. While this is a positive sign, service companies across industry segments will face a new wave of challenges over the next decade.
The readiness of companies to manage both typical and market uncertainty will play a role in defining success over the next ten years. Recruiting will continue to be a challenge for service companies and operators alike. While the offshore industry was able to increase its overall workforce for the first time since 2014, attracting and retaining talent will continue to be a significant challenge. To combat this, we’ve already witnessed the beginning of new partnership strategies in the service industry. Rystad Energy’s Subsea Analytics noted that integrated contracts are on the rise for the subsea industry. In theory, this contracting strategy will help service companies and operators alike to become more efficient when executing major work.
In the near-term, the standardization and the approval of minimum-kit designs is being called upon to help keep project costs down. The recent successful contract awards by SBM for their Fast4ward vessel concept highlights the willingness of operators to standardize in the name of cost reduction. In addition, Rystad Energy’s cost estimating and analysis has shown that the ratio of major equipment spend to subsequent topside weight for greenfield offshore projects has been halved over the last ten years.
Long-term, digitalization will play a major role in reducing project costs. Out of what was spent in 2018 on oilfield services, digitalization may well eliminate the need for $100 billion of oilfield service purchases in savings. This value creation for operators will put an additional strain on service companies to find new ways to generate revenues. The preparations that service companies make today will better help them to strive when the challenges of the 2020s begin to take effect.