Last time crude prices crashed, E&P companies cut operations and investment, with knock-on effects on oilfield service contractors, many of whom reduced headcount, went bankrupt or merged. Once again, history is repeating itself. Baker Hughes September U.S. rig count saw just 898 active rigs, a reduction of 150 from this time last year. The oil sector was worst hit with the total number of active oil rigs down 122 compared with a fall of 26 active gas rigs. Record oil and gas output has forced oil and gas prices down and hurt industry profit margins. For example, U.S. shale oil output from the seven major shale formations reached a record 8.52 million barrels a day according to the U.S. Energy Information Administration July drilling productivity report.
By the year-end Lehman Brothers’ Original E&P Spending Survey expects U.S. E&P budgets to have fallen by 17.9 percent in 2019. Contraction of oil and gas E&P means the return of lean times for oilfield services companies. Here are some popular business strategies for survival:
- Looking abroad
Some firms, who are finding life hard at home, are seeking new opportunities overseas. For example, Packers Plus Energy Services, which primarily focused on meeting the needs of America’s shale E&P, has severely cut back its domestic operations and sought new business opportunities in Algeria, Argentina, Australia, the North Sea and Saudi Arabia.