Supply Chain Pressures Felt Onshore US, 23% Global Growth Expected in 2017
US onshore activity has continued to improve through the first half of 2017, but the sector is now facing a supply chain squeeze which could see costs rise significantly, according to Westwood Global Energy Group’s (Westwood) latest World Drilling & Well Services Market Forecast (previously World Oilfield Services Market Forecast).
Global Drilling & Well Services Expenditure by Region 2012-2021
- Total market $1,185bn over 2017-2021 forecast period
- 10% CAGR expected onshore, 3% CAGR offshore
- Labour shortages and high equipment reactivation costs have led to a tight US onshore supply chain.
- US Onshore service pricing to see ~10% uplift in 2017 compared to 2016.
- International onshore activity and pricing to remain suppressed, though 2017 is likely to see the market bottoming out.
- The offshore expenditure outlook remains relatively unchanged, with rig oversupply continuing to put downward pressure on dayrates.
Westwood Global Energy Group’s World Drilling & Well Services Market Forecast – previously known as the World Oilfield Services Market Forecast – presents the latest view on prospects for one of the largest areas of total oilfield services expenditure. Total expenditure over the forecast is now expected to amount to $1,185bn over the 2017-2021 forecast period, an upward revision of 1.6% compared to the previous quarterly edition of the report.
A stronger than envisioned recovery in US onshore activity is the primary cause of the uplift in expectations this quarter, with recent indications from service providers suggesting a notable shortage of labour and equipment in many US basins. While service providers appear to be funnelling large volumes of Capex into re-activating idle fleet and increasing workforce size, Westwood does not expect upward inflationary pressures to be alleviated over the near-term.
In offshore and international onshore markets, however, activity has remained suppressed in the wake of the co-ordinated OPEC and non-OPEC output cut. Westwood does not yet believe that activity forecasts will be sufficient to result in material increases in expenditure over the near to medium-term. Instead, the majority of the expenditure trend over the period will be driven by service line pricing inflation – guided upward by expectations of a steady recovery in oil prices through to 2021. The exception to this is in the offshore rig & crew market, where a vast oversupply of mobile offshore drilling rigs (MODUs) has resulted in the sharp decline in day rates. Given a relatively flat offshore drilling activity forecast, Westwood does not expect utilisation to recover sufficiently to warrant a recovery to pre-2014 rates – at least without a vast acceleration of rig scrappage.