Changing Time For Oilfield Providers

It is a new day for the drill and frack companies, after the crude plunged below than $30/bbl it is a new world. The producers have become efficient and cost saving oriented. With the shareholder demanding payback a crude market in recovery mode. Companies are faced with challenges.

The result of the changes has impacted the two biggest companies Schlumberger and Halliburton have fallen under 65%. Weatherford international has filed for bankruptcy.

It’s a model that “definitely needs to be changed,” said Luke Lemoine, an analyst at Capital One in New Orleans, in a phone interview. “It’s just been capital destruction for 20 years.”

Even though the oil industry has been on the recovering path since 2016, oil producers are still keeping a tight lid on their spending. With new methods and technology emerging, producers have been focusing on the ways to improve the way they are drilling and fracking.

This new edge of technology is also impacting oilfield service providers. With shortening drilling times and fewer wells to drilled are taking a tool on the providers.

“I have an industry that’s built for way more work than we are currently doing, or that we think will be done in the foreseeable future – or at least the next three or four years,” said Richard Spears, an industry consultant who’s also worked in and around the oil patch for decades.

The gear glut is taking a toll as service companies are jockeying to defend their share of an increasingly lean market. The prices charged by service companies are at their lowest levels since September 2016, with more companies dropping prices than raising them, according to data from the Federal Reserve Bank of Dallas. The servicer price index hasn’t risen for at least a year, the bank’s quarterly surveys show.

Even a single company cutting back on its lesser-performing service lines would help, according to Evercore’s West. “You’re starting to see companies look at their portfolios and pruning in order to drive overall better corporate returns,” he said.

Servicers need to focus more on digital technology, switching from diesel-powered frack equipment to electric and generally improving the quality of their gear, said Jud Bailey, an analyst at Wells Fargo. Doing so could lower costs by 25-35% over the next five years, he estimates.

The companies that are winning are the ones “doing one to three things extraordinarily well,” Bailey said. “The 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.”