Oil and gas supply chain companies have seen their profits squeezed since the E&P cost cuts of the previous downturn – and just as the industry could finally hope for better days, the Covid-19 pandemic caused the value of 2020’s awarded contracts to slump to a 16-year low of $446 billion. At the same time, the transition to cleaner energy technologies is accelerating and many suppliers will have to make existential changes to survive. A Rystad Energy report evaluated who is better prepared.
The 2020 drop in awarded contracts was a steep slide of 30% from 2019’s $641 billion. The last time the industry saw a lower total was in 2004, when awarded contracts totaled $317 billion. The supply segment that declined the most in 2020 was construction and installation with a 59% drop, followed by equipment (-46%), stimulation (-45%) and engineering (-41%).
Drilling tools and services, seismic and G&G, OCTG, land and offshore drillers, SURF, and subsea equipment all declined by between 30% and 40% last year. The supply segments that fared better (relatively speaking) were operational support with awarded contract value dropping 9%, subsea services (-9%) and offshore facility leasing companies (-11%). The only supply segment that managed to score better than in 2019 was maintenance, rising 2.1% in 2020 to $72 billion.
“The past year has been a stormy one for the oilfield services industry. Out of the handful of contracts awarded, Brazil and Norway offered the lion’s share. Meanwhile, several already awarded contracts came under scrutiny, with many contractors receiving requests for revised prices,” said Chinmayi Teggi, energy research analyst at Rystad Energy.
Even if 2021 proves to be a better year, the service industry will struggle to replicate former glories, especially as the entire energy industry is being pushed to embrace the energy transition and offer less carbon-heavy solutions.
The maintenance segment is the most resilient sector thanks to its already diversified nature and its high reliance on opex budgets. Operational and professional services are also highly resilient. Transportation and logistics, drilling tools and commodities, topside and processing equipment, and the EPCI sector were also ranked as resilient.
In the other end of the scale, seismic and G&G struggles with a setup highly geared towards oil and gas, and largely relies on exploration, ending with a low resilience “score”. Other struggling sectors were well service, rigs and drilling contractors and subsea equipment and installation.
