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The U.S. oilfield services sector added more than 6,400 new jobs last month. in the latest sign that things are beginning to look up for the embattled industry. There has even been some M&A activity, too, namely Schlumberger’s offloading of its shale oil business to Liberty Oilfield Services in September. The all-stock deal saw Schlumberger take 37 percent in the larger Liberty, which will now become the second-largest hydraulic fracturing services provider in North America.
Are the job additions and merger activity indicative of a trend that will save the sector?
According to Fortune Business Insights, the Oilfield Services market could reach $346 billion by 2027–a CAGR of 6.6% during that time. Others, such as Liberty’s chief executive Chris Wright, are also optimistic. Commenting on the acquisition of Schlumberger’s fracking business, Wright said the challenging times offered an opportunity and that the acquisition was effectively Liberty’s way of grabbing this opportunity.
The chief executive of Halliburton is also optimistic. In the company’s third-quarter financial results report, Jeff Miller said, “The pace of activity declines in the international markets is slowing, while the North America industry structure continues to improve, and activity is stabilizing.”
“We believe executing on our strategic priorities will boost our earnings power reset and free cash flow generation today and as we power into and win the eventual recovery,” Miller added.
The oilfield services industry is the most vulnerable to price crashes. When prices drop, these companies’ customers have less money to spend on expanding their business, and they also have less money to spend on maintaining their operations. This means that the last two crises, which came in quicker than usual succession, were harder on oilfield services providers than exploration and production companies. And there are more challenging times ahead.
The wave of mergers and acquisitions in the E&P segment has already started with several huge deals since the start of the pandemic. Chevron bought Noble Energy, Devon took over WPX Energy, and Conoco struck a deal to buy Concho Resources. For the buyers—and the sellers, too—acquisitions are good. They mean more savings. For the oilfield service providers that work with the buyer and the sellers, each acquisition means one less client at a time when clients are not feeling too generous anyway.
“Unfortunately, what happens in this crisis is the service companies take the brunt of it. To get back to where they were in March before COVID, it’s going to take a couple of years,” an S&P Global Platts analyst, Rene Santos, told the Houston Chronicle’s Erin Douglas and Paul Takahashi last month.
For Liberty’s Wright, it all comes down to demand, and demand comes down to economic activity. In a recent interview with Bloomberg’s Alix Steel, he noted the nascent recovery in global economic activity despite the continuing pandemic and how its positive effect on oil prices could spur more activity in the oil sector as long as the effect was pronounced enough and kept prices above $40.
Schlumberger’s chief executive Olivier La Peuch sees the recovery will begin this quarter or next. Baker Hughes’ Lorenzo Simonelli said the market has “somewhat stabilized”. Yet because of the continuing pandemic, this stabilization is not as robust as the industry would have liked.
The lockdowns in Europe are an example. Although Europe is not the biggest driver of global oil demand growth, it is a large consumer, and restrictions that affect demand immediately reverberate around the industry and pressure prices, delaying the recovery of production and hence oilfield services. The U.S. is another example: although a national lockdown is unlikely, some state officials are discussing movement restrictions to stem the rate of infection.
The oilfield services sector has lost 92,302 jobs since the start of the pandemic due to the demand destruction it caused, according to PESA. These are a lot of jobs, and many may not be coming back as the industry is forced to become even leaner in these lean times. New job additions are always a signal of recovery but just how full this recovery will be remains to be seen, just as it remains to be seen when a vaccine for Covid-19 will become available and how long it will take to distribute it widely enough to make a difference in the pandemic landscape.
But for oilfield services, there may be comfort in the fact that oil companies are fastidiously searching for ways to get a leg up over the competition. And this presents a unique opportunity for oilfield services as they assist E&Ps with fracking tech that will help improve production processes, according to Fortune Business Insights.
