Outlook for oilfield services

Cautious optimism

March 2014

This is the first edition of the Deloitte Outlook for oilfield services. The forward-looking report is based on in-depth interviews with 12 executives of oilfield services companies. Its purpose is to obtain companies’ views of their current business environment and where they think the market is heading, both in the short and long term.

The interviews Deloitte conducted with industry executives in the UK suggest that against the backdrop of customer capital expenditure constraints and despite recent profit warnings, services companies are cautiously optimistic about the current operating environment. This sentiment is driven by consistently high crude oil prices, a robust demand outlook for hydrocarbons and the potential of the National Oil Company as a major customer. Some companies that are exposed to the United States shale boom are continuing to enjoy its success.

However, oilfield services companies face a number of challenges. Cost control pressures on the part of the oil and gas operators and talent shortages are the most pressing.

In the near term, oilfield services companies will continue to focus on opportunities in the UK and Norwegian Continental Shelves. Southeast Asia, West and East Africa, and the Falkland Islands are considered promising but interviewees have mixed views about the US shale market. Although many have successful operations in Russia, China, India, Brazil or the Middle East, some do not consider these priority markets in the short term. All oilfield services companies expect consolidation in the market in the next few years.

The top five factors that would stop companies from expanding include deteriorating market conditions, political risk, a complex regulatory environment, brand credibility and competition.

Over the long term, interviewees do not expect major structural changes in the industry. Rather, they believe that the sector will be more automated and efficient, share more risks with its clients, and enter into more increasingly collaborative arrangements. The successful oilfield services company of the future will be global yet act local; it will be diversified yet focused on core functions and it will be a good employer and a good global citizen. Companies believe that deepwater, decommissioning, some marginal frontier regions and shale outside the US could provide the sector with some new opportunities in the long run. 

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