Rising exploration and production (E&P) budgets worldwide, in combination with strong oil prices, will drive “robust demand” for oilfield services in North American unconventional oil and natural gas shale plays, as well as in international arenas, according to a special study by IHS Inc.
In addition to North America, the study found particularly strong demand in Latin America, South America, the Middle East and West Africa through 2012.
“The generally strong 2010 financial performance for the six multi-service providers of oilfield services continued in the first half of 2011, largely driven by rising oil prices and unconventional oil and gas drilling in North America,” said IHS senior analyst John Parry, who was the author of the study. “The moratorium on drilling in the Gulf of Mexico limited, but did not stall, what was otherwise a nice recovery compared with 2009 to 2010. Accordingly, operating margins for the group have exhibited a steady upward trend, which began in 2009.”
The six multi-service operators reviewed for the study were Baker Hughes Inc., Cameron International Corp., National Oilwell Varco Inc., Halliburton Co., Schlumberger Ltd. and Weatherford International Ltd.
“The shortage of pressure pumping capacity for multi-stage fracturing is likely to ease in 2012, which may soften margins for these services, but the companies in this sector continue to be bullish on markets outside of North America, with Latin America, South America and the Middle East considered particularly robust,” Parry said. “Other areas of demand are in the North Sea, West Africa and Southeast Asia.”
Recent mega mergers and acquisitions in the sector appear to be paying off for several of the oilfield service operators, Parry said, citing three of the biggest deals in the last two years. Baker Hughes enhanced its unconventional service offerings in 2009 by merging with BJ Services Co. (see NGI, Sept. 7, 2009). Schlumberger captured a bigger share of the onshore gas drilling market with its purchase of Smith International Inc. (see NGI, March 1, 2010). And earlier this year offshore drillers Ensco plc and Pride International Inc. agreed to merge (see NGI, Feb. 14).
“These deals, which total about $25 billion, have made them even more competitive,” he said.
For offshore drillers, Parry said the segment “continues to feel the effects of the Gulf of Mexico moratorium and the competition from new rigs entering the market, which is related to the major reinvestment cycle that has been under way since 2007. This is reflected in the 10% revenue slide in the first half of 2011 for this group. However, this figure is somewhat improved from the 15% revenue drop in 2010, and there is an encouraging sign in the sequential improvement in operating profit margins for the first half of 2011.”
The offshore companies studied by Parry include Diamond Offshore Drilling Inc., Ensco, Noble Corp., Rowan Cos. Inc. and Transocean Ltd. Despite slower growth, Parry found that offshore drillers are “optimistic that the hefty reinvestment cycle in high-specification, high-performance rigs currently under way will begin to pay off in 2012 and beyond, fostered by expanded drilling into new deepwater basins.” Ensco, Noble and Rowan, in particular, are likely to benefit most from these additions, he added.
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