For the oilfield services industry, it’s no longer about merely navigating a downturn. It’s now about survival.
Five years after crude began its plunge to less than $30 a barrel from more than $100, the companies that drill and frack wells are living in a new world. The producers they work for have become increasingly efficient and cost-conscious, reacting to shareholder demands for payback and a crude market that’s recovered only part of that brutal decline.
Meanwhile, the service companies that handed out discounts in the downturn are barely holding on. Schlumberger Ltd. and Halliburton Co., the two biggest, have each fallen by more than 65% since crude started tumbling, and Weatherford International Plc on Monday filed for bankruptcy. Contrast that with the oil producers, collectively down less than 50%.
When crude began recovering in March 2016, the servicers started refortifying. But with their customers keeping a lid on spending, the gear began to pile up. In February, Rystad Energy, an industry consultant, estimated that supplies of U.S. fracking gear -- the pumps that blast water, sand and chemicals underground to release crude in what has become the most expensive part of drilling -- will exceed demand by about 68% by year’s end.
At the same time, producers have enjoyed an output boom in recent years, doing more with less by using new methods and technology. Shortened horizontal drilling times and longer laterals that require fewer wells to be drilled are taking a toll on servicers.
In June 2014, the U.S. pumped 8.4 million barrels of crude using 1,545 drilling rigs. Last month, it produced about 12.2 million barrels, 45% more, with just 788 rigs.Pretty much says it all.
From twitter, later today:
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Cruising
Six-year-old in front. Five-year-old (birthday earlier this week) in back. Flathead Lake, Montana.
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