Last year was disappointing for the Canadian oilfield service industry and 2019 will be even worse, based on results of the 2019 Daily Oil Bulletin Service & Supply Outlook Survey, released this week.
After a solid rebound in 2017, the 120 companies that responded to the survey expected the good times to continue to roll in 2018, but weaker than expected oil and gas prices resulted in less capital spending and field activity than forecast.
Although a slight majority of companies reported increased revenues in 2018, two-thirds of respondents from last year’s survey were expecting higher revenues for the year. The situation was even worse for profit margins, with roughly a third of respondents reporting an increase last year, after almost two-thirds had expected a rise for the year.
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Looking forward, service companies as a whole are relatively pessimistic about revenue growth in 2019 compared to last year’s performance, but more optimistic about profit margins. This dichotomy is somewhat surprising given the weakened state of the Western Canadian oilpatch and oilfield service companies having already cut their costs to the bone during the extended downturn.
The oilfield service industry is relatively optimistic about prices for their products and/or services in 2019, especially compared to their expectations for day rates, but the number of companies expecting a price increase is equal to those predicting a decline, at 27 per cent.
On the other hand, oilfield service companies appear to be running out of places to cut costs. Total costs increased for the majority of companies in 2018, despite business activity being fairly weak and companies adding less permanent and contract employees on a net basis than in 2017.
When asked to select their top method to control costs in 2019, the rationalization of their services and/or products was the most common response at 43 per cent.
Ominously, responses to a number of additional questions suggest the oilfield services industry and/or the Western Canadian oilpatch are coming under increasing financial stress. Cash flow may continue to be king for the service industry as a whole, but almost a third of companies said equity, debt or a combination of the two would be their primary source of capital this year.
Cost reductions dropped substantially as a means of managing cash flow in 2018 compared to the year before, while the biggest gainer was aggressively pursuing overdue account receivables. Survey respondents said the three most common ways customers attempted to squeeze them last year were by delaying invoice payments, requesting price concessions under 30 per cent, and cancelling or delaying existing orders.
Despite three-quarters of Canadian oilfield services companies believing rapid technological innovation will fundamentally disrupt the way they do business over the next five years, the proportion of companies with no plans for new innovation projects more than doubled to 17 per cent between this survey and the last.