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Douglas Westwood : DW Monday: The U.S. Oilfield Services Rebalancing Act

05/19/2015 | 04:20am EDT

Monday 18th May 2015

When the price of oil started its tumble late last fall so too did the oilfield services (OFS) market. The rig count in the U.S. has been halved compared to this time last year and operators are struggling across the board to cut costs in this low price environment. Some of the major U.S. shale plays are being hit harder than others, some will bounce back quickly while others may start to fade away.

DW expects a 34% decrease in total U.S. oilfield services spend in 2015 for the 20 services that we cover. On a basin-by-basin level, the Barnett and the Bakken will be hit hardest. The Barnett rig count has continued its steep decline from a 2008 peak, now with only four rigs drilling for gas. With the fall in oil price, operators in the Bakken will spend 40% less on services in 2015. The Bakken is one of the more expensive shale plays and the low price environment will lead to fewer wells being completed and intense cost cutting pressure on services companies. Conversely, the Marcellus is likely to be hit the least as recently the gas drilling market has not suffered to the same extent as the oil plays.

To give one key OFS example, proppant is the sand or ceramic material designed to keep an induced hydraulic fracture open during or following a fracturing treatment. Here we expect Operators' spend to fall by 42% in 2015 as a result of a strong decrease in demand and a shift away from ceramics towards cheaper sands. While all drilling and completion-led services will suffer in 2015, those driven more by the active wellstock will suffer less than new drilling activity. Historically, services such as artificial lift and slickline services for example have been less directly correlated to oil price and are less affected by downturns.

As the oilfield services industry continues to rebalance over the course of 2015, some basins and service lines will feel the pressure more than others.

Jacob Halevy, Douglas-Westwood Houston
+1 713 714 4787 or Jacob.Halevy@douglaswestwood.com



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