ADVERTISEMENT

Is Service Sector Headed for Recession?

Lower oil prices will lead the global service market into a recession in 2020 after 3 straight years of growth, according to a new report.

Service companies have already been struggling to fully recover from the steep oil price decline that began in 2014. Earlier this week, Weatherford won bankruptcy-court approval for a Chapter 11 plan that will slash its debt load by more than $6 billion. And last week, Schlumberger, the world’s largest service company, laid out a plan to refocus its strategy going forward.

Consultancy Rystad Energy forecasts a 4% overall decline in global oilfield services revenue if oil prices stay flat to current levels next year.

“Lower oil prices call for negative growth in the service market in 2020,” said Audun Martinsen., head of oilfield services research at Rystad.  “For suppliers, this means that a 3-year growth story will come to an end, regardless of which market segment you look at.”

The report predicts 2% growth in the sector this year, to $647 billion. In 2020, the number will fall to $621 billion with an oil price of $60/bbl Brent.

The shale industry will likely drag down oilfield service purchases as it contracts by 6% next year, while offshore is set to drop 1% as oil companies cut brownfield and exploration activity in an attempt to reduce spending. Other onshore activity will see revenues cut by approximately 5% as OPEC scales back investments to curtail output.

There is positive news for some service sector segments, Rystad said. Because of an existing backlog, some service segments can still realize positive revenue growth. Subsea equipment; subsea umbilicals, risers, and flowlines; and offshore drilling can still accelerate in 2020, but growth will fall from the double-digits to the single-digits.

“This new market view stands in stark contrast to what we previously forecasted when oil price estimates stood at around $70/bbl for 2020,” Martinsen said. “At that oil price, the service market was expected to grow by 2%, held up by offshore and shale. However, downside risks have been mounting in the oil market, and we could face additional headwinds in 2020.”

Fears of a global recession could cause oil demand to continue to decline, and many operators, particularly in the unconventionals sector, have been struggling with profitability.

Looking further ahead, Rystad forecasts a better outlook for the global oilfield services market.

“In 2021 we will see the long cycle effects manifesting into a greenfield, exploration, and brownfield wave, which will come into play and initiate a 5% growth as the oil market sees relief and investments follow,” Martinsen said.

Looking toward 2023, offshore market segments, shale, and other onshore segments are likely to realize an average compounded annual growth rate of 2% to 3%. Subsea purchases, construction and installation, and equipment seem even more robust at 7% due to the massive influx of large offshore and LNG projects and the fact that subsea developments see a new renaissance, according to Rystad Energy.

In a separate report, KPMG said that oilfield services transactions have fallen to their lowest level since 2014. “To date, the expected uptick in oilfield services mergers and transactions has yet to manifest itself in actual, completed deals,” said Alan Kennedy, oilfield services UK lead partner at KPMG.

“Although they have survived the downturn and are rebuilding earnings, they have not done so yet to a level which supports pre-crash valuations, as operators continue to retain purchasing power,” he said. 

Is Service Sector Headed for Recession?

12 September 2019

ADVERTISEMENT


STAY CONNECTED

Don't miss out on the latest technology delivered to your email weekly.  Sign up for the JPT newsletter.  If you are not logged in, you will receive a confirmation email that you will need to click on to confirm you want to receive the newsletter.

 

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT