Oil service companies - welcome to hard times!

An article by Oil Voice's David Bamford on service company outlook.

"During the recent surge in oil prices to almost $150 per barrel, ‘oil patch’ costs have risen substantially, arguably relatively more than the oil price, squeezing oil & gas company margins which were in fact higher in % terms at $30 per barrel than at $100 plus. Meanwhile large amounts of money have sloshed in the direction of most oil field service companies: only occasionally have their prices contained a willingly-paid premium for new or top-of-the-line technology – mostly they have been the result of a deep demand/supply imbalance, to the advantage of these suppliers."

"Secondly, we are beginning to see the beginnings of a consolidation phase in which a significant percentage of oil field service companies’ customers will disappear as Majors and Independents once again find it both opportune and cheaper to “explore on Wall Street” to fill portfolio gaps, by acquiring reserves-rich competitors."

"Although specialised, deep water drillers have been able to negotiate 3+year deals for 4th and 5th generation rigs; such extremely predictable revenue is not available, say, to drillers onshore in North America."

"The shape of the future is not yet clear but the following may well be important themes for those, such as seismic companies, that are more exposed to capital expenditure cut-backs:

1. At least 80% of the world’s reserves are in the hands of government-owned NOCs such as Saudi Aramco, the Iranian NIOC, the Libyan NOC, Venezuela’s PdVSA etc and less than 20% in the hands of public companies such as ExxonMobil, BP, Total etc.

2. By and large, where the oil field services sector (especially the seismic companies) got into “dire straits” last time around was by pandering to the wishes of the ‘owners’ of the “20%”, in particular the explorers amongst them.

3. Surviving and even prospering during the next down-turn may seem to depend on building relationships of “mutual advantage” with NOCs, and also on focusing on reservoir management, as opposed to exploration and appraisal."

"...one could imagine that a Russian company such as Integra could grow to be a player on the global stage."

"My prediction is that that 2009 and 2010 will see a major re-shaping of the oilfield service company landscape as the Majors, the bigger IOCs, the NOCs and host governments assert – or re-assert – themselves…"