Oil field services companies slogging through the worst downturn in decades can no longer rely on their traditional oil bust playbook of cutting costs, laying off people and offering deep discounts.
Instead, the industry will have to reshape the way it does business to meet the evolving needs of oil companies clamoring for cheaper and more efficient tools and services, rather than the expensive, custom-fit solutions that the services providers had been pursuing before prices collapsed, according to a new analysis by management consulting firm Bain & Co.
“It’s a pivotal moment,” said Ethan Phillips, a partner at Bain & Co. who co-authored the report examining the services industry’s response to the oil slump. “The industry that comes back is going to look quite different than it did a few years ago. The services and equipment providers that use this opportunity to remake their cost base, rethink how they interact with customers, and reorient their portfolios to the part of the industry that’s going to see the biggest activity bounce-back, those are the ones that are going to win.”
That’s a dramatically different approach from the past decade, in which the services industry expanded at a rapid clip and fetched a premium for their products and services as producers electrified by $100-a-barrel crude rushed to yank as much oil and gas from the ground as possible, the report found.
As prices soared, so did costs as services providers chased the most expensive and complex projects, such as tailor-made hardware for oil and gas extraction in extreme environments like the Arctic and ultradeep-water, the Bain analysis said.
Since prices have tumbled and stayed low for longer than originally expected, many operators have announced plans to curtail spending on such massively expensive developments, a trend that will force services providers to shift their focus, too, Bain said.
As these companies brace for an extended bout of anemic crude prices and a further retreat from the oil patch, the companies that supply exploration and production firms with the tools, software and services they need to produce oil and gas are on the prowl for new ways to lower costs for their customers while shifting their portfolios away from high-cost developments that no longer have the same allure they did when companies could fetch much higher prices for a barrel of crude.
