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Oilfield service companies react to market pressures

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Rig service companies have mixed sentiments

Previously in this series, we looked at the rig count activity in US onshore and offshore fields. In this part, we’ll review the major oilfield service companies’ outlook for the US market.

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Management views

Schlumberger (SLB) is the largest oilfield equipment and servicing company. In corporate releases related to its 4Q14 earnings, Schlumberger (SLB) was cautious about 2015 US drilling activities. Crude oil prices are clearly a concern for oilfield service companies.

Management stated, “In response to the falling oil prices, the industry is currently in the process of significantly reducing E&P investments which will lead to a reduction in supply as declining rates impact current production capacity and lower exploration and development activity delay supply additions.”

Schlumberger update

In 4Q14, Schlumberger (SLB) recorded a pre-tax $1.7 billion impairment charge. The charge was related primarily to three factors:

  • the downsizing of its marine seismic fleet
  • an Eagle Ford-related asset impairment
  • workforce restructuring

Schlumberger is part of the VanEck Vectors Oil Services ETF (OIH) and the Energy Select Sector SPDR ETF (XLE). SLB accounts for 20.6% and 7.0% of OIH and XLE, respectively.

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Industry consolidation

Meanwhile, falling crude oil prices have stirred things up in the oilfield equipment and servicing industry. On November 17, 2014, Baker Hughes (BHI) signed a definitive agreement to merge with Halliburton (HAL). If it goes through, it will be the biggest-ever deal in the industry. The agreement may also mark the beginning of a consolidation trend in the industry. For more on this topic, read Baker Hughes-Halliburton: A critical deal for the oil industry.

Transocean update

Recently, Transocean (RIG) announced the scrapping of seven lower-specification deepwater and midwater floaters. This brings the total number of scrapped floaters to 11. Floaters include drillships and semi-submersible rigs for offshore drilling.

In a recent industry conference, Transocean described the challenges lying ahead for the offshore drilling market. It believes customers are “holding back” or are deferring  plans to spend on exploration. Lower offshore drilling activity, or lower demand, is resulting in an oversupply in the ultra-deepwater drilling industry.

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