Oil Services Should Get Ready for a Recession, Rystad Warns

[ceo_energemsier + 1,818]

Oil Services Should Get Ready for a Recession, Rystad Warns

 

https://finance.yahoo.com/news/oil-services-ready-recession-rystad-121652401.html

[Ian Austin + 131]

Sorry, but given all of the pricing concessions made and the forthcoming writedowns/layoffs by the big guys (HAL/SLB), you could argue the service sector has been experiencing a recession for years. 

[ceo_energemsier + 1,818]

General Electric Company (GE) is giving up majority control of oilfield services company Baker Hughes through a common stock sale, the companies announced Tuesday.

GE commenced a secondary offering of 105 million shares of Baker Hughes Class A common stock.

In the privately negotiated transaction, Baker Hughes also agreed to a $250 million share repurchase of Class B common stock from GE.

Upon completion of the offering, GE and its affiliates will no longer hold more than 50 percent of the voting power of all classes of Baker Hughes’ voting stock. This will lower the number of people GE can designate to Baker Hughes’ board of directors from five to one.

GE said it intends for John Rice to remain on the Baker Hughes board of directors as its designee and for Jamie Miller and James Mulva to submit their resignations to the Conflicts Committee of the company’s board of directors. Lorenzo Simonelli and W. Geoffrey Beattie are expected to continue to serve on the company’s board of directors but not as GE designees.

GE combined its oil and gas business with Baker Hughes in 2017 to become one of the largest players in the oilfield services sector. At the time, GE held a 62.5 percent ownership majority.

Just one year later, GE stated it intended to fully separate its 62.5 percent interest in Baker Hughes in two to three years.

A few months after that, both companies agreed to a proposed sale by GE of part of its stake into the market as well as a repurchase of another part of GE’s stake by Baker Hughes. The transactions kept GE’s stake in Baker Hughes above 50 percent.

The most recent announcement of GE giving up majority ownership in Baker Hughes comes just weeks after Harry Markopolos, who had raised concerns over Bernie Madoff before his fraud was exposed, alleged GE was hiding a loss of more than $9 billion on its holdings in Baker Hughes.

[ceo_energemsier + 1,818]

56 minutes ago, Ian Austin said:

Sorry, but given all of the pricing concessions made and the forthcoming writedowns/layoffs by the big guys (HAL/SLB), you could argue the service sector has been experiencing a recession for years. 

Its been going on for years now , the shale boom and bust, the price volatility etc. Service companies cut down the prices to help producers over  the past several years and that didnt help the service companies in the long run, and the suppliers to the service companies had to cut down their prices and costs. Same was with the offshore drilling industry.

Some of the larger service companies and even some of the smaller ones got into the JV game with producers by taking equity positions and profit sharing.

With the shale and  non shale bankruptcies and a possible slow down in drilling, there will be service company bankruptcies and consolidation. Many companies across NA have gone out of business over the years.

Start seeing a lot of rigs being stacked again.

[footeab@yahoo.com + 2,129]

5 hours ago, Ian Austin said:

Sorry, but given all of the pricing concessions made and the forthcoming writedowns/layoffs by the big guys (HAL/SLB), you could argue the service sector has been experiencing a recession for years. 

My bottom line has been in recession for years.... That is for sure.  

[ceo_energemsier + 1,818]

oil and gas jobs fall as shale boom cools

 

 

https://www.reuters.com/article/usa-shale-kemp-idAFL5N2624K0

[ceo_energemsier + 1,818]

U.S. shale firms cut budgets, staff as oil-price outlook dims

 

https://www.reuters.com/article/us-usa-oil-slump/us-shale-firms-cut-budgets-staff-as-oil-price-outlook-dims-idUSKCN1VR15P

[ceo_energemsier + 1,818]

Offshore drilling executives are trying to win back investors who have fled their stocks over the past year, insisting that a protracted recovery is gaining momentum.

After suffering their worst downturn ever following the collapse of oil prices in 2014, rig companies started regaining hope as crude recovered three years later, bolstering the coffers of the oil companies that pay for their services. But the improvement to the offshore drilling market has been much slower than anticipated, weighing on an industry with too many rigs and too much debt.

As oil tumbled again in late 2018 and in recent months to fluctuate around $60 a barrel, offshore drilling stocks took a severe beating. Everyone in oil services has had an “absolutely horrible year,” Pareto Securities AS head of investment banking Tormod Hoiby said on Wednesday at the opening of the firm’s annual Oil & Offshore Conference in Oslo.

Getting Better

Rig executives were adamant the market is improving and that their valuations present an investment opportunity.

“The fundamental recovery in the market and what’s happening in the equities are obviously completely dislocated,” said Anton Dibowitz, chief executive officer of billionaire John Fredriksen’s Seadrill Ltd, which emerged from bankruptcy protection last year.

With almost $6 billion of bank debt remaining, Seadrill is a “leveraged play,” but it’s “where you want to be” if you believe in the business, Dibowitz said. After pushing the earliest maturity to 2022, the company has time to wait for the recovery, he said.

Another driller with significant debt, Noble Corp., is in a “very good position to weather the storm,” CEO Julie Robertson said. Day rates for deepwater drillships may rise to $250,000 by the end of the year from up to $200,000 now, and “the fundamentals are much better,” she said, even as she acknowledged sounding like a “broken record.”

For shallow-water jack-up rigs, rates have doubled since early 2018 to about $100,000 a day. The market is especially favorable to modern machines like the ones operated by Borr Drilling Ltd., chief financial officer Rune Magnus Lundetrae said at the conference.

“Interesting enough, now that we have rigs in operation and we actually make some money and day rates are going up, the share price is going down,” the CFO said. “So you decide if this is an opportunity or if this is sort of a conclusion that this is not working.”

Wary Investors

The stock market’s cold shoulder is understandable, conceded both the CEOs of Seadrill and Pacific Drilling SA, another company that emerged from Chapter 11 last year. After being “burnt three times” in successive market drops since the downturn started, investors want to see evidence of higher day rates, Pacific’s CEO Bernie Wolford said in an interview.

“As an industry we’ve let down equity investors over and over again, saying ‘the recovery’s going to be next year,’” Dibowitz said. “They actually want to see us starting to deliver cash flow. And they also want to see us as an industry start acting more rationally, being disciplined.”

While Borr intends to pay shareholders back with dividends, CFO Lundetrae declined to say when that might be. Even Odfjell Drilling Ltd, one of the stocks that has performed best during the downturn thanks to its exposure to the healthier market segment of floating harsh-environment rigs, doesn’t intend to start payouts until 2021 or 2022, its CEO Simen Lieungh said at the conference.

Investors’ growing interest in renewable energy over the past year is another cause for concern in the oil services industry, Pareto’s new CEO Christian Jomaas said. Yet investments in offshore oil will rise in parallel with global crude demand in the coming years, he said.

“There’s a lot of people who take the view that this industry will crumble,” he said in an interview on Thursday. “We don’t believe that.”

[Douglas Buckland + 6,308]

One thing people need to realize is that if the service companies were to go out of business, NO WELLS, ANYWHERE, WOULD BE DRILLED!

Oil companies generally do not have the ability to actually drill, case, cement, evaluate or test the wells they design. The drilling contractors provide the rigs and crews while third party companies provide the rest of the services.

[Ian Austin + 131]

4 hours ago, Douglas Buckland said:

One thing people need to realize is that if the service companies were to go out of business, NO WELLS, ANYWHERE, WOULD BE DRILLED!

Oil companies generally do not have the ability to actually drill, case, cement, evaluate or test the wells they design. The drilling contractors provide the rigs and crews while third party companies provide the rest of the services.

It’s funny. I spent the majority of my career at Producers, with a year of consulting in the service industry. Since 2015, the Service industry has been hemorrhaging $, being forced to lose money for the honour of keeping busy. Procurement has taken over - it’s he only time in my career hat I’ve seen pleasure taken in “grinding down” a partner. 

I don’t think a lot of people in the industry understand that, if the relationship between Producers and Services isn’t symbiotic, then the industry will eventually work itself into a pickle

Edited September 14, 2019 by Ian Austin

[Douglas Buckland + 6,308]

5 minutes ago, Ian Austin said:

It’s funny. I spent the majority of my career at Producers, with a year of consulting in the service industry. Since 2015, the Service industry has been hemorrhaging $, being forced to lose money for the honour of keeping busy. Procurement has taken over - it’s he only time in my career hat I’ve seen pleasure taken in “grinding down” a partner. 

I don’t think a lot of people in the industry understand that, if the relationship between Producers and Services isn’t symbiotic, then the industry will eventually work itself into a pickle

Absolutely correct! I have consulted for the operators for the past 25 years or so within the drilling segment of our industry. In the days before the present downturn, it was a dance. We’d hammer the service companies over the contract and prices and they’d hammer back until an agreement was reached. A lot like selling a used car. They wanted as much for their ‘old car’ as they could get for it, and we wanted to get it as cheap as possible. Eventually we’d come to an agreement out in the field, let the respective head offices worry about the fine print and get on with the job. As both parties in the field just wanted to drill a successful well, they usually tended work together as a team.

Apparently the shale operators in the States, as that was the only place drilling anymore, in an an effort to improve THEIR precarious financial positions, simply forced the service companies to lower their prices to the point where the service companies were struggling to survive.

In the short term this seemed to work. I guarantee you that the service companies that survive will not forget this.

As drilling eventually picks up internationally, these companies will start moving personnel and equipment to more lucrative, or more friendly, environments.

In the oilfield especially, ‘what goes around, comes around’.