For the oilfield services industry, it’s no longer about merely navigating a downturn. It’s now about survival.
As Bloomberg reports, 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 filed for bankruptcy last week. Contrast that with the oil producers, Bloomberg notes, collectively down less than 50%.
It’s a model that “definitely needs to be changed,” Luke Lemoine, an analyst at Capital One in New Orleans, told Bloomberg in a phone interview. “It’s just been capital destruction for 20 years.”
Oilfield service providers have a long history of riding the ups and downs in the energy market. They ramp up rigs, workers and prices when oil is more expensive, and cut back when the market drops.