During a PESA market outlook webinar June 3, Ian Macpherson of Simmons Energy compared the current situation to previous economic downturns and took a look at the path forward for the oilfield services and equipment sector. His analysis focused on key data from oil majors and service companies and included scenarios for rationalization, consolidation and recovery.
Path to Recovery
To understand which recovery shape the American economy and energy markets will take, various factors must be considered, Macpherson said. He told attendees that the unique conditions in current markets are due to the two-headed supply and demand shocks and long-term demand destruction.
Macpherson said that markets bottomed out at record speed during the current crisis, and that capital injection and physical markets will need to be nimble to assist when markets rebound. Additionally, he said that politics could play a role during the recovery because the major political parties have differing policy priorities.
Macpherson discussed the outlook for pressure pumping, land drillers and offshore drilling. While pressure pumpers had been reducing capital expenditures correction early in 2020, he expects further reductions of up to 50% to balance the market. Land drillers are less cyclical, he said, and could serve as a good template for pressure pumping. Offshore drillers were beginning to recover as deep water vs. shale became more compelling to resource holders, but the pandemic has thrown that recovery into doubt. Macpherson said it’s too early to determine the impact of price corrections for the offshore sector.
Dimensions of ESG
Technology, Macpherson noted, will permeate all areas of the oil and gas industry post-pandemic. Robotics, digital apps across drilling functions, and remote monitoring and control are critical areas of oil service being enhanced by technology. Future oil services workers will require different skillsets than before, he said.
Macpherson said he’s seen impressive innovation and entrepreneurship in the Permian Basin by companies solving problems related to flaring, waste and water scarcity. These are areas that merit increased capital investment and will translate to additional job opportunities in the OFS sector.
Macpherson said that OFS management teams and financial markets are presently expressing divergent views of the sector and the shape of demand normalization. Analysts have been predicting large-scale consolidation from the pandemic’s early days, and Macpherson thinks we’re likely to see some of that. While significant damage has been done to the OFS supply chain, repairing it will require a natural cyclical confluence of improved commodity prices and rationalized capacity and competition within the industry.
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