Page 7 - NorthAmOil Week 26

NorthAmOil COMMENTARY NorthAmOil
less than 50% since the downturn started, lead- ing service rms Halliburton and Schlumberger have each seen their value shrink by over 65% during this period.
e relentless pursuit of e ciency gains in recent years has also made recovery more di - cult for the service sector. While upstream play- ers have bene ted from being able to produce more oil at a lower cost and in less time, the same factors are hurting service providers. Horizon- tal wells can be drilled more rapidly, and longer laterals also require fewer wells to be drilled in total, so demand for drilling equipment and ser- vices is lower. Indeed, the US’ oil production is hitting record highs even though the active oil rig count has roughly halved since June 2014. At that time the US oil rig count averaged 1,545, and the country produced 8.4mn barrels per day (bpd) of crude. In June 2019, it produced roughly 12.2mn bpd with only 790 oil rigs on average. And in February, consultancy Rystad Energy forecast that supplies of hydraulic fracturing equipment would exceed US demand by about 68% by the end of this year.
Data from the Federal Reserve Bank of Dal- las show that the prices being charged by service providers are at their lowest levels since Septem- ber 2016, with more rms cutting prices than raising them. e bank said its servicer price index has not risen for at least a year.
What next?
ere does not appear to be any reprieve com- ing for the service sector, especially not in the shorter term. According to law firm Haynes and Boone, which tracks oil and gas rm bank- ruptcies, 178 oilfield service providers filed
for bankruptcy protection between January 2015 and mid-March 2019. While the pace of bankruptcies has slowed, they are expected to continue as the operating environment takes its toll – mainly on smaller companies, but as Weatherford’s ling shows, large players are not immune either.
Even Schlumberger, the world’s largest oil- field services provider, has resorted to shed- ding non-core assets in an e ort to improve its performance. Other players have responded to the operating environment by consolidating, or embarking on aggressive expense-cutting pushes. Competition for business is intense given these circumstances, and indeed, it is thought that those providers focusing on a few core businesses stand to do better than those who spread themselves too thin.
A Wells Fargo analyst, Jud Bailey, was cited by Bloomberg as saying that if services rms focused on digital technology, switching from diesel-powered to electric fracking equipment and upgrading their products, this could lower their costs by 25-35% over the next ve years.
e companies that are weathering the storm best are the ones “doing one to three things extraordinarily well”, Bailey was quoted as say- ing. “ e ones who do 10 things – and do one or two of them really well and the rest mediocre – those are the ones who are struggling.”
It is possible that a company as large as Weatherford filing for bankruptcy will send shockwaves through the sector and force other players to take yet more steps to ensure their survival. But at least a few of them will still likely fail to adapt, and will end up seeking bankruptcy protection too.™
Other players have responded to the operating environment by consolidating, or embarking on aggressive expense-cutting pushes.
Even oil eld service giants Halliburton
and Schlumberger have struggled in this operating environment.
Week 26 04•July•2019 w w w . N E W S B A S E . c o m
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