The drop in oil prices has hit oilfield service companies hard as E&P companies have reduced their activities significantly, although subsea companies have been doing relatively well in comparison, according to research from analysts Rystad Energy.
The strong competition for a reduced number of contracts has enabled field operators to negotiate down contract values, hurting the oilfield service companies even more. Revenues for oilfield service companies fell by 30% from Q2 2014 to Q4 2015. This downward trend continues in 2016 as top oilfield service companies reported a drop of 16% in their revenues from O4 2015 to Q1 2016.
However, not all service segments have been struck equally hard by the crisis. Subsea companies have been doing well under the circumstances, Rystad said.
For the top players in this segment, revenues decreased by only 15% from Q2 2014 to Q4 2015. Technip had its best year ever in 2015 helped by currency effects.
Rystad said that as revenues fell, oilfield service companies needed to reduce their expenditures. In 2015, the total workforce was cut by 15 to 20%, but it was not enough to save the EBITDA-margins from falling by almost 20%.
Subsea players cut their workforce by 15%, but managed to keep their margins as their revenues did not fall as much.
From the peak in Q2 2014, backlogs of the subsea players have decreased by 44%, more than the average reduction for the total oilfield service industry.
Furthermore, there are limited possibilities to strengthen weakened backlogs with new contracts. For the total oilfield service industry, the worst is almost over, and in 2017 there will be at least 50% more greenfield contracts to fight for than in 2015 assuming a recovery of oil prices. For the subsea players, recovery will not come before 2018.
Rystad said, “Overall, the subsea sector faces tough times ahead and recovery is not likely before 2018. So far, subsea companies have been living mostly on offshore field projects sanctioned before the crisis. Since these projects have large sunk costs, they have not been cancelled, irrespective of the oil price drop. However, as there have not been many sanctioned subsea developments in the past 24 months, there will be fewer contracts coming in the next months.
“On the positive side, being late in the value chain has given the subsea players time to reposition themselves for challenging times ahead. They will be able to see the oil price rising as they reduce expenses, making it much easier to optimize their cost-cutting process and prepare for the upturn.”
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