Better times for oilfield services
Revenues at the sector's big firms are picking up, but the global outlook remains uncertain.
Recent results from the three leading oilfield services companies provided few surprises, but reflected a steady revival in the sector over the last year, underpinned by rapid growth in the buoyant US shale sector.
The sector's largest firm, Schlumberger, reported a 14% year-on-year rise in overall first quarter revenues to $7.83bn, and a 52% rise in North American revenues. Halliburton's overall revenues rose 34% to $5.74bn, largely due to a strong performance in the North American market, where revenues rose 58%. By contrast, international revenues rose 9%. Revenues at GE's BHGE -comprising the operations of Baker Hughes and GE Oil and Gas that merged last year-rose 1% year-on-year to $5.4bn.
Between the three firms, overall revenues rose by 15% on average, with a 21% increase in oilfield services sales offset by a rise in oilfield equipment sales of only 1%, according to consultancy Rystad Energy.
"With the great surge of activity in short cycle businesses - like US shale and the slower-to-respond equipment market, typically in offshore - this will also be directionally in line with what we expect the trend to be in 2018 as a whole," Audun Martinsen, an oilfield services sector analyst, at Rystad wrote in a commentary on the companies' results.
'A significant increase in global E&P investment will be required to minimize the impending production deficit'
Rystad forecast in April that the global well services market would grow by 12% in 2018 from 2017 levels, compared with a growth forecast of 2% for the subsea equipment market. It estimated the US shale well count would rise sharply by 30%, while growth in the well count outside North America will be restricted to 3%.
Given this backdrop, the companies with the largest exposure to the US shale sector are likely to do best. Rystad says the North American hydraulic fracturing market could expand by between 30% and 50% in 2018.
Paal Kibsgaard, Schlumberger's chief executive, said that he believed investment in exploration and production (E&P) remained lower than underlying market conditions merited.
"As operators look to overcome growing infrastructure constraints and as refineries approach current processing capacities for light oil-in spite of these clear signs of a tightening oil market-there has been no upwards revision to 2018 E&P spending, with North America and international upstream investment still expected to grow in the range of 20% and 5% respectively," he told analysts in a conference call on the results.
"Based on these investment levels and the current supply, we believe it is increasingly likely that the industry will face growing supply challenges over the coming years and that a significant increase in global E&P investment will be required to minimize the impending production deficit," he added.
Faster growth in revenues from Asia would likely be offset by slower growth than expected in Africa and Latin America, "where the start of the activity recovery seems "to be pushed out to the second half of 2018", he said.
The services firms will need how best to allocate their resources to maximise profits in the short-term, while not missing out in currently subdued markets, as and when an upturn occurs in those. With over-capacity still an issue in North America and elsewhere, price competition is likely to remain fierce where the companies have overlapping products.
They will need to focus on adjusting their exposure to countries and product lines and balancing market share growth against service pricing, according to Rystad's Martinsen. "There is still a battle out there among the suppliers to grab a share of the rise in activity, but this will come at a cost. Choices will have to be made between improving margins or improving revenues," he said.
As corporate spending constraints are loosened in response to greater exploration and production activity, the services firms can be expected to continue to bolster their workforces, extending last year's positive trend. Rystad calculated last year that some 300,000 people, or 35% of the workforce, were laid off among the top 50 services companies in 2014-16.
Recruitment is happening again, but even allowing for greater efficiencies of the low-cost oil era, if order books pick up as the industry hopes, oilfield services firms may yet struggle to fill jobs fast enough to deliver what their clients need.