2019 Service & Supply Outlook Survey Results: Market Conditions Less Favourable This Year, Say 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 six-part series, Vince Lauerman sifts through the results of the 4th annual Service & Supply Outlook Survey to identify key trends in the sector. Parts one, two and three of the series looked at the financial performance of oilfield service companies in 2018, and expectations for this year. Parts 4-5 examine the market conditions the industry faced last year, and expectations for this year.
Today’s installment looks at the service pricing environment in 2018, and looks ahead to expectations for 2019
To read the full report, click here.
Oilfield service companies are predicting a challenging market conditions in 2019, with a large minority expecting day rates to decline compared to 2018. The sector also expects to struggle to manage their costs, and to recover costs from customers due to increased pricing from suppliers or increased demands on equipment in the field. They also expect pricing pressure from customers to continue.
Improving day rates and increasing product pricing remain a challenge
The Canadian oilfield service industry is quite pessimistic about day rates for 2019, especially compared to last year. Thirty-nine per cent of survey respondents expect day rates to decline this year, compared to 17 per cent that foresee an increase, and none of these expect a rise greater than 10 per cent. In last year’s survey, 42 per cent of service companies expected day rates to increase in 2018, with only 12 per cent forecasting a decline.
Despite this pessimism about day rates, the service industry’s most important benchmark price, service companies are relatively optimistic about prices for their own services in 2019. Twenty-seven per cent of respondents expect prices for their products and/or services to increase, the same number that foresee a decline, but none expect a price rise of greater than 20 per cent. For the sake of comparison, 51 per cent or last year’s survey respondents expected an increase in pricing in 2018, and only 15 per cent predicted a decline.
Midsized operators most optimistic about improved pricing
The Canadian oilfield service industry as a whole may be quite pessimistic about day rates for 2019, but this tends to be driven by small (less than $5 million in annual revenue) and large (greater than $100 million) companies. Only 9 per cent of survey respondents from small and large service companies expect day rates to increase this year, roughly a sixth the number forecasting a decline.
In contrast, 29 per cent of mid-revenue service companies are expecting an increase in day rates this year, 11 percentage points more than are predicting a decline. The relative pessimism is especially evident on the extreme downside, with almost a quarter of small and large companies expecting day rates to decline more than 10 per cent, compared to only 3 per cent of mid-revenue companies.
Although the service industry as a whole is relatively optimistic about prices for their products and/or services in 2019 compared to day rates, the dichotomy between small and large service companies on the one hand and mid-revenue companies on the other continues.
Twenty-two percent of small and mid-size companies expect prices for their products and/or services to increase this year, 7-percentage points less than those predicting a decline. In contrast, 36 per cent of mid-revenue companies are expecting an increase in prices, 11 points more than those forecasting a decline. Nine per cent of small and large companies are expecting a decline of 20 per cent or more for their products and/or services, whereas no mid-reveneu companies expect the same.
The Canadian oilfield services industry as a whole is quite pessimistic about day rates for 2019, but some sub-sectors are more pessimistic than others.
The most pessimistic sub-sector about day rates is oilfield services/field operations, with almost one half of survey respondents expecting a decline this year, and only 12 per cent predicting an increase. In contrast, distribution is the most optimistic service sub-sector, with 38 per cent of companies expecting an increase in rates, 13 percentage points more than are forecasting a decline. No company focusing on distribution is expecting a decline in day rates greater than 10 per cent.
Exploration and development is the second most optimistic sub-sector, but companies expecting day rates to decline this year still exceed those predicting an increase by 25 per cent to 17 per cent.
The service industry as a whole is relatively optimistic about prices for their products and/or services in 2019 compared to day rates, but again there is a wide range of divergence among the sub-sectors.
The most optimistic sub-sector is again distribution, with half of respondents expecting an increase in prices for their services and only 13 per cent forecasting a decline. No company specializing in distribution is expecting a decline greater than 10 percent.
On the other hand, both the exploration and development and oilfield services/field operations sub-sectors are relatively pessimistic about pricing for their products and/or services. Only 23 per cent of companies focusing on exploration and development are expecting prices to increase, 15-percentage points less than those predicting a decline. Twenty-nine per cent of companies specializing in oilfield services/field operations are expecting a price rise, 6 points less than decliners.
To read the full report, click here.