Market Overview

Oilfield Services In 'Survival Mode'

Oilfield Services In 'Survival Mode'

  • Oilfield service companies are "slashing costs," and "no cut is too small," The Wall Street Journal reported.
  • Oilfield service companies are looking to reduce costs anywhere and everywhere, even by changing the color of paint on underwater equipment.
  • The industry as a whole has seen tens of thousands of layoffs, while behemoth firms join forces to create much needed synergies.
  • Oilfield service companies are looking to cut costs wherever and whenever possible, even if it involves switching the color of paint used.

    TECHNIP SA (OTC: TNHPF), a company that provides project management, engineering and construction for the energy industry, has switched to using white paint instead of yellow on its underwater equipment.

    Yellow paint is the industry standard, but is more expensive. Technip's president of subsea told The Wall Street Journal that the savings isn't "big money" but there are "many examples like this."

    Related Link: Will A Warm Winter Stoke Natural Gas?

    Cutting Jobs, Changing Paint Is Just The Beginning

    The company said in July it needs to slash 6,000 jobs and any little savings it can find is significant since crude prices are now trading near the $50 per barrel mark – half of its price from summer 2014.

    The significant drop in oil has left even the world's biggest oil-services company, Schlumberger Limited. (NYSE: SLB) vulnerable; the company reported a 33 percent decrease of revenue from a year ago and a near halving of its profit in its third-quarter results.

    Meanwhile, industry giants are looking to combine businesses in order to realize synergies and cost savings. One of the most notable mergers consists of Halliburton Company (NYSE: HAL)'s proposed $35 billion acquisition of Baker Hughes Incorporated (NYSE: BHI).

    Halliburton expects to realize nearly $2 billion of operating synergies from its acquisition.

    2016 Could Be Worse

    The Wall Street Journal cited Wood Mackenzie, an energy consultancy group, as saying next year could be worse for the sector because oil producers are pulling back more than $200 billion in spending this year and next.

    "It's a huge falloff," said James Webb, an analyst at Wood Mackenzie. "The primary response from the service industry has been very much survival mode – cutting their own margins, bidding competitively and reducing capacity."

    However, with a barrel of oil selling for $50 or less, the simple fact is projects aren't moving forward, in fact, big oil companies are scaling down.

    Image Credit: Public Domain

    Posted-In: James Webb OilAnalyst Color News Commodities Markets Analyst Ratings Trading Ideas Best of Benzinga


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