Oilpro comments am. Hal getting to edge.
With this downturn destined for extra innings, the point of maximum pain in the upstream industry is still on the horizon for many producers. Hedges, service price concessions, and asset sales are just a few of the tools operators are using to delay their discomfort.
But for many oilfield service providers (especially the completion-oriented), the point of maximum pain is much closer. While operators can turn up production volumes from existing fields to help offset commodity price declines, service provider financials have been ransacked by both price and volume (utilization) mayhem.
The four key SMID-cap NAM service providers have lost money every quarter this year, and breaking points are close at hand. In the Permian Basin, only half the companies from a year ago are still bidding for frac work. That's still too many for the few available jobs, so frac crews are working for free to stay busy. This is not sustainable, and "Darwinian" has become the latest industry buzzword.
A leading NAM service provider we spoke with this week told us that further pricing degradation will be the nail in their coffin. Operators keep asking service providers what their bottom price is, and service companies are spending thousands of man-hours trying to explain that their bottom price was hit months ago.
When Halliburton starts losing money in North America, weaker hands fold. And Halliburton will start losing money in North America this quarter. Completions-oriented services are hurting the most, but the maximum pain threshold will be tripped in many other service lines during 2016. For example, deepwater drilling rigs are now bidding at dayrates near cash break-even levels.
So what's left to cut? Cuts from here will be into muscle not fat, and safety and workforce readiness risks will rise. There is no gamesmanship at play when service companies say there isn't anything left to give without permanent and long-lasting impairment to the oilfield value chain. More outright exits and consolidation will soon permanently scar the oilfield landscape. Operators counting on continuing service concessions to delay their day of reckoning should understand that for many service providers, the day of reckoning is already here. -- Joseph Triepke, Oilpro Managing Director
The greatest deception men suffer is from their own opinions.
~ Leonardo da Vinci
