Oilfield services companies are in bullish mode, according to offshore engineering sources.They are now able to raise the prices of their products and services after years of stagnation.
Audun Martinsen, head of oilfield services research at resta energy, said: "oil and gas investment is rising and so is the pricing power of service companies.After losing pricing power in 2015 and 2016, oilfield services companies have regained some of that power, thanks first and foremost to industry consolidation among players in the centralized market over the past few years."
Martinsen added: "pricing power in services is likely to be further strengthened as orders are expected to increase across the supply chain, combined with capacity adjustments to avoid oversupply in 2019 and 2020."
Oil and gas companies cut investment across the board in 2015 as oil prices plummeted.But while the larger and more economically powerful E&P companies can buck the trend and invest counter-cyclically when opportunities arise, smaller companies can only prepare for the storm to pass.As a result, the service company's customer base has shrunk.
Martinsen commented: "this trend will continue in 2016, but in 2017 and 2018, more e&p companies may eventually be able to finance their ambitious business growth by improving operating cash flow, bringing the level of market concentration in 2018 to 2014 levels."
The analysis shows that the four service companies -- schlumberger, halliburton, BHP billiton and Technipfmc -- and the next 10 largest service companies grew by the fourth quarter of 2015, when they began losing market share to smaller companies.
"While the market for oilfield services has become more concentrated as buyers have become more fragmented, there are other factors that affect pricing power," Martinsen says.Some sectors, while more concentrated, still face serious challenges from oversupply, forcing companies to adjust capacity before prices rise."