The oilfield services sector transforms again

A damaging downturn

In the oil and gas value chain, the oilfield services sector is an essential partner for exploration and production companies. They provide drilling, completion, production, supply, and logistical support services—both onshore and offshore.

During the 2014-2016 downturn in oil prices—which led to a decline in upstream development activity—the oilfield services sector was hard hit by reduced revenue, canceled or renegotiated contracts, and massive personnel layoffs. Between 2014 and 2016, 36 percent of companies in the oilfield services sector ceased operations; revenues contracted by almost 55 percent; and job losses exceeded 50 percent in some subsegments.¹

¹ S&P Capital IQ and Deloitte analysis.

The oilfield services sector in recovery

​Deloitte’s new report, Phoenix rising: The oilfield services sector transforms again, examines the impact the downturn has had on the oilfield services sector. It explores the actions and attributes of the companies who survived and prospered during this time, as well as those that did not. With industry recovery taking shape, the paper also discusses the strategies that oilfield services companies are beginning to adopt to improve their performance and resiliency moving forward.

The secrets of survival

To understand the best strategies for moving forward, it is essential to look back. It this case, Deloitte analyzed a group of 56 oilfield services companies to understand why and how they survived the industry downturn. We looked at the common qualities they shared and how could those qualities be used to their advantage—and replicated by other companies—to capitalize on the emerging industry recovery.

The oilfield services companies that were the most resilient during the downturn had more geographically dispersed operations. They also had a greater presence in service segments like offshore operations that benefited from longer-term contracts. Larger services companies—with broader and deeper technological capabilities applicable to diverse operating conditions—were more likely to have these characteristics, although some smaller companies also outperformed the group of examined companies.

Out of the ashes: Seven strategies for sustained recovery

We identified seven key strategies across three transformation categories:

Category 1: Prioritize services that achieve ongoing cost reductions for upstream operators—in particular, those related to achieving business process and integration efficiencies.

Strategy 1

Advanced technology to lower customer costs.

Strategy  2

Innovate business process efficiencies to lower customer costs.

Strategy  3

Integrate value chain offering or bundle offerings to lower customer costs.

Category 2: Reorganize and redesign business processes to reduce internal costs within the services company.

Strategy 4

Increase internal business process efficiencies to support balance sheet improvements or lower prices for customers.

Category 3: Develop new products and services in existing or adjacent markets.

Strategy 5

Expand or add new market offerings.

Strategy 6

Pursue long-term contracts.

Strategy 7

Add or expand market offerings to non-energy sectors.

The unifying theme across these strategic categories is the recognition by oilfield services companies that sustainable success will likely depend on meeting and anticipating customer needs.

 

¹ S&P Capital IQ and Deloitte analysis.