The downturn caused by COVID-19 is projected to cause an annual 25 per cent decline in global demand for oilfield services (OFS), a Rystad Energy analysis shows
This year’s expenditure is expected to reach US$481bn and take the first step on the road to recovery in 2021, when a tick-up of just around two per cent is predicted.
The recovery will accelerate further in 2022 and 2023, with OFS spending by E&Ps reaching some US$552bn and US$620bn, respectively. Despite the boost, purchases will not return to the pre-COVID-19 levels of US$639bn achieved in 2019.
However the comeback from 2021 will not be visible across all OFS segments. Well services and the market for pressure pumping will be the first to see a boost, while other markets will have to get further depressed before they recover.
Rystad Energy’s head of energy research Audun Martinsen, said, “Despite the recovery in oil prices, it will take many quarters before all segments of the supply chain see their revenues deliver consistent growth. In case of an upturn, operators would prefer flexible budget items with production increments and high-return investments with short pay-back times. Therefore, we expect well service segments to be the first to recover, while long-lead segments will pick up much later.”
Dividing OFS into six segments – maintenance and operations, well services and commodities, drilling contractors, subsea, EPCI and seismic – will only be able to increase by the first three in 2021, while the latter three will have to slow down revenues for another year before they can expect improvements.
In absolute numbers, the maintenance and operations segment is poised for consecutive yearly rises in the next three years after slumping to US$167bn this year from US$202bn in 2019. We expect spending in this segment to recover to US$175bn in 2021, US$193bn in 2022 and US$205bn in 2023.
The well services and commodities segment is set for a similar recovery, but only after slumping to US$152bn in 2020 from US$231bn last year – the biggest decline among segments in absolute numbers. Here we see spending at US$163bn in 2021, US$189bn in 2022 and US$210bn in 2023.
The same pattern also applies to drilling contractors, with the segment falling to US$46bn in 2020 from US$62bn last year, and then rising to US$47bn in 2021, US$54bn in 2022 and US$57bn in 2023.
The subsea segment, on the other hand, will fall from US$25bn in 2019 to US$24bn in 2020 and decline further to US$22bn in 2021 – before starting to rebound to US$24bn in 2022 and to US$29bn in 2023.
Similarly, EPCI is set to fall to US$81bn in 2020 from US$105bn last year. It will slide further to US$74bn in 2021, before rising back to US$81bn in 2022 and growing to US$106bn a year later.
Lastly, seismic is poised to decline to US$12bn in 2020 from US$15bn in 2019. It will first keep dropping to US$10bn in 2021, before rebounding to US$11bn in 2022 and to US$13bn a year later.
“At best there will only be certain regions and service segments that will see their revenues grow consistently. For the whole supply chain to recover, we will likely need to wait until after 2023, when we expect service purchases to return to their 2019 levels,” added Martinsen.
Suppliers will face a continued challenge turning their bottom lines back into black and deal with their debt. However, while the oil and gas market is expected to take years to recover, the impending energy transition could be a potential avenue of hope as it could open up new markets for OFS players to leverage their capabilities and grow.