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Oilfield Equipment Market Down But Not Out, Says Douglas-Westwood

Spending for oilfield equipment (OFE) has fallen sharply over the past year, mostly impacting the U.S. onshore, but recovery should begin by 2017 and accelerate thereafter, according to new research by UK-based Douglas-Westwood Ltd. (DW).

The World Oilfield Equipment Market Forecast is estimating that after a 19% decline in the OFE market in 2015 following the oil price collapse, global capital expenditures (capex) between 2015 and 2019 should increase by $36 billion to $180 billion.

"Onshore expenditure has been particularly hard hit by commodity price decline, with a 31% fall in capex expected in 2015, compared to only a 3% decline in offshore spend," said lead author Matt Adams. "Equipment oversupply, particularly in the U.S., is symptomatic of falling drilling activity."

For instance, the market for onshore hydraulic fracture pumps is expected to decline by 82% this year, "with very few new additions to be added to the existing fleet," as under-utilized units are used to replace and maintain active units. "Similar stories are seen across onshore equipment lines, from conveyancing tools to onshore rigs," Adams said.

Offshore oilfield equipment manufacturers are cushioned by longer lead times and contracts signed pre-2015.

Fixed and floating production systems account for the largest portion of future offshore spending because of the large number of new installations scheduled to be put in place as deepwater projects ramp up. Subsea hardware order book backlogs also remain, helping to sustain offshore equipment expenditures through to 2017.

Operator-related capex is expected to see less severe near-term effects of the industry downturn, with a decline of only 14% forecast in 2015, because of the production-focused spending, including production trees, artificial lift and midstream installations.

"Such spend must remain regardless of falling greenfield activity, aided by replacement and maintenance demands of installed equipment and shifting focus toward increasing flow rates from existing assets," according to the report.

By contrast, oilfield service (OFS) company and contractor expenditures -- including most of the capital spent on rigs -- should bear the brunt of the decline in capex. DW is expecting to see a decline of almost one-third (32%) in 2015 spend.

OFS and contractor spending "is largely impacted by a lack of anticipated offshore rig orders" following peaks between 2011 and 2013. There's also an underutilization/oversupply in many fleet-related equipment lines such as pumping units, helicopters and onshore rigs.

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