The latest edition of Douglas-Westwood's World Oilfield Services Market Forecast has reported that with the slump in crude oil prices, the global oilfield services (OFS) sector would continue to face trials and tribulations as the capital expenditure (Capex) in the sector fell by 38 per cent in 2015.
According to the report, adjustments to spending plans by operators are expected to continue well into 2016, compounding 2015's decline by a further 10 per cent, representing a total of 48 per cent drop in the market this year.
Douglas-Westwood (DW), which has provided 25 years of commercial insight into the global energy industry said in the latest report that Africa had been the most robust region for OFS spend, with 2015 witnessing the highest number of deepwater wells drilled in the region since 2009.
This, the report said resulted in a one per cent increase in total offshore spend.
"Rig and crew expenditure is the sole driver of the increase with all other service lines seeing contraction in expenditure due to pricing reductions. Offshore rig and crew has been an exception to this trend due to drilling contracts still in place from before the market downturn. However, upon contract expiry, these rigs are likely to command significantly lower day rates due to oversupply and declining offshore drilling activity," said the report.
Consequently, the report said it expected offshore Africa expenditure to decline seven per cent year-on-year over 2016-2020.
The report further acknowledged that the predominant driver of the current market downturn is the Organisation of Petroleum Exporting Countries (OPEC's) oil production position - led by Saudi Arabia's desire to maintain market share.
"DW estimate the number of development wells in the Middle East increased incrementally in 2015, however, OFS expenditure in the region fell by 18 per cent. This is due to a raft of cost cutting initiatives and contract re-negotiations undertaken by operators, including Saudi Aramco reducing service pricing by some 20 per cent. The removal of Iranian sanctions is expected to bolster OFS expenditure growth in 2016, both onshore and offshore. Total expenditure growth for 2016 is likely to amount to three per cent, with an average growth rate of five per cent over 2016-2020," the report added.
According to DW, the North American onshore market has undoubtedly taken the brunt of the industry downturn, with OFS expenditure falling 58 per cent in 2015 alongside a 62 per cent decline in onshore rig count and a 47 per cent fall in onshore wells drilled.
The report cited recent analysis by Haynes and Boone, which indicate a total of 46 North American oilfield services companies have filed for bankruptcy since the start of 2015 - a number which DW expects to grow over the next 6-12 months.
"Offshore North American spend has also been hit hard by the industry downturn - with a 66 per cent decrease in shallow water wells drilled. However, expenditure in the region has been supported by deepwater drilling, which has seen high day rate rigs remain on contract, resulting in an offshore OFS expenditure decline of only 19 per cent. Post-2016 spend will decline consistently through to 2020 as these rigs come off contract, significantly reducing the average day rate of rigs drilling," the report explained.
The report further noted that coiled tubing (CT) services would remain a bright spot within the OFS sector outlook, due to increasing utilisation at well sites across the globe.
"There is a clear industry trend towards longer and increasingly deviated drilling trajectories - supporting growth in the use of CT. Services with brownfield applications such as surface well testing, production testing, fishing and stimulation are also expected to see relatively strong growth through to 2020. Operators looking to maintain flow rates from existing assets will be a main target for OFS work through the forecast, a reversal of trends seen prior to 2015," the report added.
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