Photo: Illustration, offshore workers; Source: ExxonMobil

Rystad: Oilfield services demand to drop by 25 per cent due to Covid-19 downturn

The Covid-19-caused downturn is set to cause a 25 per cent yearly drop in global demand for oilfield services (OFS), a Rystad Energy analysis shows.

Rystad said on Thursday that OFS spending was expected at $481 billion this year and take the first step towards recovery in 2021 when it is forecast to tick up by just about 2 per cent.

The recovery will accelerate further in 2022 and 2023, with OFS spending by E&Ps reaching some $552 and $620 billion, respectively. Despite the boost, Rystad stated that purchases would not return to the pre-Covid-19 levels of $639 billion achieved in 2019.

However, the comeback will not be visible across all OFS segments from 2021. According to the company, well services and the pressure pumping market will be the first to see a boost, while other markets will need to get further depressed before recovering.

Rystad Energy’s head of energy research Audun Martinsen said: “Despite the recovery in oil prices, it will take many quarters before all segments of the supply chain see their revenues deliver consistent growth.

In case of an upturn, operators would prefer flexible budget items with production increments and high-return investments with short pay-back times. Therefore, we expect well service segments to be the first to recover, while long-lead segments will pick up much later“.


Analysis per segment

If we divide OFS into six segments – maintenance and operations, well services and commodities, drilling contractors, subsea, EPCI, and seismic – only the first three will manage to rise in 2021.

Rystad claims that the latter three will have to brace for another year of falling revenues before they can expect improvements.

In absolute numbers, the maintenance and operations segment is poised for consecutive yearly rises in the next three years after slumping to $167 billion this year from $202 billion in 2019.

Spending in this segment is expected to recover to $175 billion in 2021, $193 billion in 2022, and $205 billion in 2023.

The well services and commodities segment is set for a similar recovery, but only after slumping to $152 billion in 2020 from $231 billion last year. This is the biggest decline among segments in absolute numbers. Spending in this segment is expected to rise to $163 billion in 2021, $189 billion in 2022, and $210 billion in 2023.

The same pattern applies to drilling contractors, with the segment fell to $46 billion in 2020 from $62 billion last year. According to Rystad, it will rise to $47 billion in 2021, $54 billion in 2022, and $57 billion in 2023.

The subsea segment, on the other hand, will begin its rebound in 2022. Namely, it fell from $25 billion in 2019 to $24 billion in 2020 and will decline further to $22 billion in 2021. The first rebound will be to $24 billion in 2022 and then to $29 billion in 2023.

Similarly, EPCI is set to fall to $81 billion in 2020 from $105 billion last year. It will slide further to $74 billion in 2021. After two bad years, it will rise back to $81 billion in 2022 and grow to $106 billion in 2023.

Lastly, seismic is poised to decline to $12 billion in 2020 from $15 billion in 2019. It will keep dropping to $10 billion in 2021, before rebounding to $11 billion in 2022. It will further grom to $13 billion a year later.

At best there will only be certain regions and service segments that will see their revenues grow consistently. For the whole supply chain to recover, we will likely need to wait until after 2023, when we expect service purchases to return to their 2019 levels“, adds Martinsen.

Rystad added that suppliers will face a continued challenge turning their bottom lines back into the black and deal with their debt.

However, while the oil and gas market is expected to take years to recover, the impending energy transition could be a potential avenue of hope as it could open up new markets for OFS players to leverage their capabilities and grow.

It is worth reminding that Rystad said earlier this week that the Covid-19 downturn will expedite peak oil demand and reduce the world’s recoverable oil by around 282 billion barrels.