Segment Focus
Oilfield Services & Equipment
2014 Fourth Quarter
In 2014, the oilfield services & equipment industry is expected to generate $133.6 billion in revenues in the United States.1 This represents a 1.5% increase from 2013. Industry revenues declined materially in 2009, driven by the decline in energy demand resulting from the lower level of economic activity during the recession. Despite the Deepwater Horizon oil spill in 2010 (for which oilfield service companies Halliburton and Transocean were partially responsible, according to a government report), industry revenues rebounded given higher energy prices and resurgence in domestic energy production.
Hydraulic fracturing and horizontal drilling practices, coupled with higher oil prices, have allowed exploration & production companies to profitably operate in areas which were previously not economically viable. However, with the recent decline in oil prices, there is a considerable amount of uncertainty related to future drilling activity. Unlike traditional wells, which have high up-front costs but relatively low costs for marginal production, hydraulically fractured wells have higher marginal costs of production. As such, drillers are more likely to suspend activity sooner than they would with traditional wells.
Industry revenues, as estimated by IBISWorld, are expected to rise over the next several years due to increases in global energy demand and the continued growth of domestic drilling activity. However, we note that these estimates do not take into account the recent decline in oil prices.
