As we venture deeper into a new year, the oilfield services realities of 2023 become more clearly defined. Recent weeks have brought reports from news outlets and other information sources as they have offered up their views of oilfield changes and developments. We share some “quick takes” on how things are changing and what lies ahead.
Oilfield Services (OFS) Employment is UP
The website RigZone.com observes that oilfield services employment late in 2022 rose by an estimated 2,350, according to figures compiled in November by the Bureau of Labor Statistics.
The total figure for workers in oilfield services (OFS) was 645,500. The November increases mean that OFS employment stands at its highest since numbers started to drop in March 2020. Still, the current level of employment reflects 60,000 fewer workers than were tallied in the pre-pandemic marketplace of February 2020, when OFS employment stood at 706,528.
While the labor market remains relatively strong, it is cooling compared to the first two quarters of 2022, RigZone observed.
“The latest increase in our sector is very encouraging,” said Leslie Beyer, CEO of the Energy Workforce and Technology Council CEO. “We now have almost gained back all the jobs lost since March of 2020, when the pandemic began to significantly hit the labor market. Building back our workforce is essential to meeting growing global demand for energy.
“Our workforce is producing at near pre-pandemic levels, while developing new technology and deploying innovative production processes that are lowering emissions. Further investments and a level regulatory landscape are needed to unlock the full power of American energy, providing energy security for our nation and that of our allies while continuing to decrease global emissions and lowering energy costs.”
Smaller But Stronger
The oilfield is tightening up, but that is not necessarily bad.
Mergers and acquisition activity has served to “consolidate” certain companies, a trend that means that there are fewer entities, overall, in the oil patch.
As Fitch Ratings has observed, consolidation, combined with greater focus on free cash flow and absolute debt reduction in the energy sector, may ultimately lead to fewer credit issuers but with stronger credit profiles, according to a new special report from Fitch Ratings. Fitch is a “provider of credit ratings, commentary, and research.”
Debt levels in the exploration and production (E&P) and oilfield services (OFS) subsectors will continue through 2023, according to Fitch. The rise in commodity prices in 2021 led to only a moderate pickup in E&P company spending, highlighting improving financials and the resultant jump in free cash flow. Going forward, lower debt levels will increase the probability of M&A transactions in the sector.
Oilfield Services and Discipline
In mid-January, industry analyst James Wicklund observed that the shortage of good people continues to be an issue in the oil patch. Wicklund, who circulates a popular email newsletter called “Things I Learned This Week,” also observed that cost inflation continues as well, even though supply chain problems have eased. “Oil prices aren’t high enough to expect big budgets increases or low enough to expect cuts,” Wicklund wrote. “But the OFS sector has not had their capital discipline tested yet the way E&Ps have. Pay down debt? Being done. Increased wages? Continues. Pricing improvements? Still there though momentum is fading. Return cash to shareholders??? Sounds great, but so does that shiny new pump, or truck, or other piece of equipment.
“Add capacity to chase market share? So last cycle. Will history repeat? Boards of directors are meeting and listening to management’s ambitions. Have they learned anything from the last cycle? Maybe that they don’t last as long or get as good as we like to think. Caution still rules.”
Here’s a snippet from Wicklund in the month previous: “Oil hit $71 and that is causing the bragging over activity and price to slow considerably. Everyone is still happy, but cautious. They all know that oil can’t stay here forever. Those same people thought $100 was the bottom six months ago. I listened to OFS managements tell me that the current margin situation was not sustainable. I heard it for at least eight quarters in a row. As was once said, “The market can stay irrational longer than you can stay solvent.” I can come up with an impressive list of reasons why oil prices should trend higher and the 3-5 year outlook really isn’t nearly as challenging as the next 3-6 months.”
Production Keeps Climbing
The good news is that business is not slowing. Not for Integrity Wireline, and not for its fields of operation either. Oil and gas activity across the entire country is holding steady if not improving.
GlobalData, a leading data and analytics firm, reports that oil and gas production will continue its upswing “in the medium term.”
U.S. crude oil production has grown steadily in 2022 thanks to increased energy demand in the United States and internationally. GlobalData says that the majority of this production has been conducted in the Lower 48 states, which represented nearly three-fourths of total production. This upward swing is expected to continue in the medium term with the sustained investment in the area that is expected.
And the Permian is in the Thick of It
The major oil plays within the L48 region include the Permian, Bakken, Eagle Ford, and DJ basins, GlobalData states. Together, these basins were expected to cumulatively produce around 7.5 million barrels per day of crude oil in 2022. Crude oil production in the L48 is projected to increase, predominantly in the Permian Basin, due to sustained investment from operators in drilling and completion of wells, supported by a large skilled workforce.
Ravindra Puranik, an O&G analyst for GlobalData, comments: “The Permian Basin benefits from well-developed infrastructure and is close to the refining and crude export terminals at the Gulf Coast. These, combined with strong investment and a powerhouse workforce, will have helped the basin [finish 2022 with] an estimated production of 5 million barrels per day.”