(by Datamonitor) The value of the US oil well services and equipment market in 2006 was approximately $23 billion, representing 18% of the global value, which has shown a compound annual growth rate (CAGR) of approximately 13% since 2002.
Manufacture of oil rigs and drilling equipment remains the most lucrative segment of the market, constituting 30% of its value; drilling-related services generated a further 19%; formation and evaluation comprised 15% of market value, with well completions representing 6%.
Oil companies are attempting to exploit domestic reserves to their fullest potential, boosting demand for equipment and services providers. Tapping new reserves is more lucrative for services and equipment manufacturers than development of already-tapped reserves. Energy companies are both exploring potential sites overseas and developing domestic reserves, streamlining their infrastructure by selectively decommissioning and upgrading pipelines. Furthermore, the destruction of Gulf Coast infrastructure during various hurricanes (especially Katrina in 2005), has also created a short-term demand for replacement equipment.
Leading companies include Plains All-American Pipeline, Halliburton, Schlumberger, and TEPPCO. In response to industry demand, the continuous development of efficient technologies is paramount within the services and equipments of oil wells. Companies are also expanding inorganically through M&A activity to maximize their product portfolio and geographical coverage. In order to preserve margins, companies are selecting contracts that promise high returns on outgoings. This has increasingly meant that companies have sought to expand their operations outside the domestic market.
New Exploration
American regions planned for development in 2006 include Texas, the Gulf Coast, and Canada. These will provide opportunities for exploratory drilling. Also, further afield, Russia is developing rapidly in oil exploration and thus further creating and necessitating heavy expenditure by oil and gas companies on equipment and supplies, as expenditure on equipment is more extensive for newly tapped reserves than for heavily developed ones.
Inclement Weather
In deepwater situations, equipment is frequently damaged: hurricane Katrina in 2005 caused major damage to rigs and equipment in the Gulf Coast, including at least five rigs that had to be completely scrapped. The replacement and restoration required have necessitated extensive capital outlay, benefiting the oil well services and equipment industry.
Shutdown of Under-Utilized Pipelines
Companies are decommissioning under-utilized and non-profitable pipelines to concentrate their resources on improving the remaining pipelines. This has created a short-term boost for companies offering decommissioning services.
Significant Trends / Improved Technology
Companies are constantly investing in the development of efficient technology, maximizing oil and gas extraction and optimizing revenues. These new technologies can be marketed at premium prices, and have driven revenue growth in recent years.
Mergers and Acquisitions
The market is continuing to consolidate. Through merger and acquisition activity, companies have sought to increase revenues inorganically by operating in overseas markets, limiting their exposure to fluctuations in the US market.
Selective Strategies
Due to the strength of their market position, the larger players have adopted selective strategies when bidding for contracts: favoring high margin/low risk options. In contrast, many of the smaller players have been forced to take higher risks for relatively lower margins, because of their inability to compete with the industry giants.
The value of the global oil and gas equipment and services market is deemed to be the revenues accrued by the manufacturers of equipment, including drilling rigs and equipment and providers of supplies and services to companies involved in the drilling, evaluation and completion of oil and gas wells.
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