More hard times ahead, say survey respondents

In late 2018 the Daily Oil Bulletin surveyed 120 representatives from all subsectors of the oilfield services industry to gauge how the industry performed in 2018 compared to 2017, and to get a sense of the sector expects 2019 to play out. In this seven-part series, Vince Lauerman sifts through the results of the 4^th annual Service & Supply Outlook Survey to identify key trends in the sector. Parts one to three of the series looks at the financial performance of oilfield service companies in 2018, and expectations for this year. Parts four to six will examine the market conditions the industry faced last year, and expectations for this year. Part seven will examine the role technology is playing in the sector today, and in the future.

Today, part one reviews company revenues in 2018 and provides a revenue outlook for 2019.

To read the full report, click here.

Service companies expect tough financial conditions to continue in 2019

After a turnaround in 2017, many survey respondents reported downturns in revenues in 2018. A significant minority of respondents expects this trend to continue in in 2019. Access to capital is expected to remain tight, with most operators relying on cash flow to fund operations.

Decline in revenues predicted by over one-third of survey respondents

Oilfield service companies reported a rebound in revenues in 2017 after a disastrous 2016, as increases in oil prices and capital investment resulted in a significant bump in field activity. Sixty-one per cent of survey respondents reported a rise in revenue in 2017, with two-thirds of those seeing increases of greater than 10 per cent. Roughly a quarter reported declines in revenue.

The relatively good times were expected to continue to roll in 2018, with two-thirds of respondents to last year’s survey expecting higher revenues, but then the wheels fell off Western Canada’s crude wagon. Large price differentials for regional crude, especially in the second half of the year, along with continuing large price discounts for the region’s natural gas, increasingly weighed on industry activity.

As a result, only 53 per cent of survey respondents saw an increase in revenue in 2018, with more than half of that gain limited to 10 per cent or less, and 37 per cent suffered revenue declines.

Looking forward, service companies are relatively pessimistic about revenues in 2019, which should not be a great surprise given curtailment of Alberta crude and low, volatile regional gas prices. Only 40 per cent of survey respondents are expecting revenues to increase in 2019, while 35 per cent anticipate declines.

Big service providers, Mom & Pop shops, hardest hit by revenue decline

2018 was a fairly disappointing year for many Canadian oilfield service companies — after a rebound year in 2017 — especially for small ones based on revenue (less than $5 million) and large ones (greater than $100 million). Only 44 per cent of them saw an increase in revenue in 2018, the same number that reported declines. In contrast, almost two-thirds of respondents from mid-revenue companies reported a revenue rise, and only 28 per cent saw declines.

At the same time, small and large companies were much more likely to suffer a relatively large revenue drop last year, with a third of them reporting declines greater than 10 per cent, compared to only 5 per cent of mid-revenue companies. Small and large companies were the only ones to see declines greater than 20 per cent.

Looking forward, service companies as a whole are relatively pessimistic about revenues in 2019. But this pessimism is driven by small and large companies, with 44 per cent of them expecting declining revenue, 11-percentage points more than anticipate a rise. In contrast, 50 per cent of mid-revenue companies are predicting revenue growth in 2019, over twice as many that expect a decline.

Exploration and development sector most pessimistic about 2019

The Canadian oilfield service industry may have had a fairly disappointing year in 2018 on the revenue front, but some sub-sectors performed significantly better than others.

The worst performing sub-sector last year was exploration and development with only 38 percent of companies reporting a rise in revenues, compared to 77 per cent of companies focused on transportation, the best of all sub-sectors. Results for the oilfield services/field operations were indicative of the industry as a whole, with 47 per cent reporting increases in revenue and 39 per cent declines.

Looking forward, companies focused primarily on exploration and development and oilfield services/field operations are among the more pessimistic about revenue in 2019, whereas those specializing on distribution are the most optimistic.

Twenty-three per cent of survey respondents from the exploration and development sub-sector are expecting an increase in revenue this year and 32 per cent of those specializing in oilfield services/field operations. In contrast, 89 per cent of companies in the distribution sub-sector expect a revenue rise, but none greater than 20 per cent.

To read the full report, click here.