Oilfield Services (OFS) Market in 2023 and Beyond

The oilfield services (OFS) market in 2023 and beyond is characterized by a mix of challenges and opportunities.

While facing headwinds like oil price volatility, Operator capital discipline, and decreased drilling activity, the industry also benefits from tailwinds such as Operators’ focus on well efficiency, the rise of vertically integrated OFS companies, and the recovery of day rates.

How will these factors influence the OFS market? What strategies are available for navigating challenges and harnessing the industry's potential?

Three Headwinds Impact the OFS Market

1. Oil price volatility
   Significant oil price volatility continues. Following the massive run-up in 2021 and the first half of 2022, prices have declined 7% year-to-date and 27% over the past year. While prices are still elevated, compared to pre-2021, the recent decline has led to uncertainties and potential reductions in exploration and production activities.
   
   
2. Continued "capital discipline" by Operators
   Operators' increased scrutiny of OFS company rates means that service providers have to demonstrate value, cost-effectiveness, efficiency, productivity gains, and innovative solutions to remain competitive.
   
   
3. Decreased drilling activity
   The industry has witnessed a reduction in drilling activity, with 10% fewer operating rigs in North America compared to the previous year. To address this, companies need to adapt risk mitigation strategies, focus on value-added services, and maximize operational efficiency and asset optimization.

Three Tailwinds Drive Opportunities in the OFS Market

1. Operators’ focus on well efficiency and productivity
   OFS companies have the opportunity to stand apart from competitors by supporting Operators in maximizing returns on investment through innovative technologies, optimized workflows, and data-driven insights that enhance well efficiency and productivity.
   
   
2. Vertically integrated OFS companies
   OFS companies that are able to offer more comprehensive solutions across multiple segments, are positioned to capture a larger market share and provide seamless and efficient operations for Operators.
   
   
3. Recovery of day rates
   Day rates for rigs and associated drilling and support services have largely recovered to pre-pandemic levels (and in many cases are higher than before 2020), presenting a favorable commercial environment for OFS companies. However, capitalizing on this trend requires that OFS companies demonstrate value, reliability, and quality in their offerings.

Navigating Challenges and Maximizing Opportunities

To navigate the headwinds and harness the tailwinds in the OFS market, companies should consider the following strategies:

1. Focus on operational efficiency
   Enhance efficiency through digitalization, automation, and data analytics to reduce costs and increase productivity. Emphasize value-added services that optimize operations, streamline workflows, and improve asset performance.
   
   
2. Demonstrate cost-effectiveness
   Deliver cost-effective solutions by optimizing supply chain management, leveraging economies of scale, and utilizing Lean practices. Implement transparent pricing models and value-based propositions to address Operators’ capital discipline requirements.
   
   
3. Foster innovation
   Invest in research and development to develop cutting-edge technologies that address Operators’ evolving needs, including well efficiency, environmental impact reduction, and safety improvement.
   
   
4. Strengthen partnerships and integration
   Forge strategic partnerships and collaborations to provide comprehensive and integrated offerings. Vertical integration offers a competitive advantage by providing a one-stop solution for Operators’ needs.
   
   
5. Adapt to changing market dynamics
   Continuously monitor and adapt to market dynamics, aligning services and capabilities with emerging trends and Operator requirements. Stay agile and responsive to seize opportunities as the industry evolves.
   

Strategic Procurement Success with SGS Maine Pointe’s TVO Framework

SGS Maine Pointe’s Total Value Optimization™ (TVO) approach enables OFS companies to achieve operational excellence and create value through strategic analysis of existing operations. By streamlining processes, reducing costs, and integrating procurement, logistics, and operations, OFS companies enhance efficiency and create value throughout their supply chains. Combining TVO with expertise in the oil & gas industry, SGS Maine Pointe maximizes strategic sourcing, supplier relationship management, and cost optimization for cost reduction and value enhancement.

The TVO strategy helps OFS companies:

1. Mitigate risks and build resilience
   By mapping supply chain vulnerabilities, developing contingency plans, and implementing proactive risk mitigation measures, OFS companies safeguard operations and maintain business continuity. The TVO approach identifies potential risks upfront and enables effective risk management strategies.
   
   
2. Leverage data analytics and technology integration
   The TVO approach leverages advanced analytics, machine learning, and automation for insights and operational optimization. By harnessing the power of data, OFS companies gain visibility into their supply chains, identify areas for improvement, and make informed decisions. Technology integration enables seamless information flow for enhanced efficiency and collaboration.
   
   
3. Enhance and create value
   The TVO framework empowers OFS companies to enhance procurement efficiency, mitigate risks, and leverage data and technology for informed decision-making. These strategic approaches position companies for success in the dynamic OFS market, tapping into its vast opportunities, while driving operational excellence.

The OFS market faces headwinds in the form of oil price volatility, Operator capital discipline, and decreased drilling activity. However, there are also tailwinds, such as Operators’ focus on well efficiency, the rise of vertically integrated companies, and the recovery of day rates. Navigating these challenges and capitalizing on the opportunities requires a strategic approach such as Total Value Optimization. By focusing on operational efficiency, cost-effectiveness, innovation, partnerships, and adaptability, OFS companies can position themselves for success in the dynamic landscape of 2023 and beyond.

Sheehan Gallagher

Managing Director, Energy Services

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