New service company alliances changing the game

HALLIBURTON’S attempted takeover of Baker Hughes may have fallen through, but service companies globally have managed to drive costs down for operators desperate to keep their balances in check by forming a range of game-changing alliances.

Anthony Barich

The more favourable and likely-to-go-ahead merger between US underwater specialist FMC Technologies and European engineering house Technip is a prime example of such integration across different sectors to attract more work.

Rystad Energy says that such alliances have become more commonplace now to help companies offer integrated services for the whole value chain and avoid unnecessary complexity and risks.

Some of these alliances have also materialised in the merger and acquisitions space, such as Schlumberger’s acquisition of Cameron (OneSubsea).

Rystad said such M&A activity has “changed how the market operates”, with Schlumberger strengthening its position as the largest player, while TechnipFMC could now position itself as the second largest oil field service company.

The firm believes the current challenge in the oil field service market is also evident in the world of mobile offshore drilling units, which is one of the service segments most affected by the downturn with a record decline last year.

“Halfway into 2016, we have clear signs of the challenges facing the floater market this year. A large number of contracts have been terminated and further investment decisions are pushed back,” Rystad said.

“We expect the current year to end with a reduction in floater demand by 24% from 2015’s level, an equivalent to a drop from 226 units to 172 in 2016.

“Looking into 2017, we see a more stabilising market after two years of turmoil with substantial decline. As the oil price is expected to rebound, we anticipate a recovery of the floater market towards 2020.”

While the firm sees gross utilisation levels declining further into next year, assuming no further retirements, it warned that there was still a need to continue the current retirement cycle in order to contribute to better market conditions and reduce the oversupplied floater space.

Depressing reading

All this is consoling reading for service companies who have suffered through a depressing first half of 2016, but Rystad believes better times are ahead.

While Rystad believes the negative trends from 2015 have continued into 2016 with further revenue decline, weaker margins and more layoffs, the oil price has gradually increased since it bottomed out in January, indicating a turning tide for the service industry expected in the second half of this year.

For the first quarter 2016 companies reported a drop in revenue of 16% compared to late 2015.

Seismic players faced the worst revenue decline, dropping by 22%, whereas companies exposed to maintenance and operations experienced a revenue drop of 9%.

“As companies will start to report their second quarter numbers in late July, we expect a further fall in earnings by approximately 10%,” Rystad said.

“This will be the last quarter with double-digit drop, and we may see revenues beginning to increase in the third quarter this year.”

Most read Archive

topics

loader

Most read Archive