By Chris Frevert, Managing Director
It’s no secret the oil price downturn is changing the face of our industry. The early summer WTI head-fake above $60 provided some temporary optimism but, as prices settle in the $40’s, questions remain surrounding continued pressures felt by service providers and what is being done to weather the storm.
As an investment banking firm specializing in energy services, we find ourselves uniquely positioned to learn from all types of companies across the value chain and share our knowledge with the hope of supporting the industry through, and as we emerge from, this downturn.
To learn what your colleagues were experiencing, Citadel Advisory Group conducted a follow-up survey in August to over 500 owners and C-level executives of privately-held US energy service companies. When the first survey was conducted in February 2015 there was still a group of service companies (nearly 8%) that had not felt the effects of the downturn. By mid-year, all respondents had seen pricing decreases and nearly 60% expected more to come. A similar trend was seen in work volume.
Since January 2015, almost half of oilfield service company owners have seen work volumes decrease by more than 25% and nearly 60% are bracing for further reductions. Over 75% of respondents have reduced rates by over 10%, and nearly 60% anticipate further rate reductions as the industry attempts to counter falling oil prices.
As with the first survey Citadel conducted, approximately 70% of the respondents have been in business for more than 10 years. Most of these folks have been here before and have the knowledge and determination to ride this out.
One question we asked was “In your opinion, where do you anticipate the price of WTI to be on December 31, 2015?” Over 80% of respondents believe the price will be less than $55 per barrel, a somber contrast to responses in Q1 when the majority anticipated prices over $56 per barrel. Oil was trading at $45 at the close of the survey period. Any optimism that oil will make any meaningful recovery by year-end seems to be fading quickly for those in the trenches.
In addition to questions about company demographics such as basin focus, revenue, and workforce size, our survey also assessed company-driven cost reduction strategies and the end result of price reduction negotiations.