After two years of stress and declining earnings, the global oil field services (OFS) and drilling sector’s 2017 earnings before interest, tax, depreciation and amortization (EBITDA) is expected to grow between 6% and 8%. In a new report, Moody’s Investors Service has revised its outlook on the industry to stable from negative. Recovery is in the offing for oil prices and upstream spending. Signs of optimism are to be found in expected improvements in OFS operating margins and an expansion of upstream drilling budgets.
"While OFS companies will remain stressed in regions with high production costs and excess service capacity, the broader operating environment will become less dreadful as higher energy prices keep spurring U.S. rig activity and stabilizing international markets," said Moody's Vice President Sajjad Alam.
Certain businesses and markets are expected to undergo further declines in revenue and EBITDA, however; recovery will not be uniform. Onshore international markets are expected to stabilize with accelerated oil field activities by the U.S. and Canada, but offshore operations will decline. Analysts expect OFS to regain pricing power by the second half of this year in regards to onshore equipment utilization. Declining investments and project deferrals are likely to continue in the realms of deepwater and ultradeepwater operations.
Furthermore, smaller companies that are specialized or regionally focused continue to face tough business conditions in 2017. More than half of its rated OFS companies have very weak credit quality, Moody’s said. Survival prospects for will be challenged in a slow recovery environment because of the difficulty in repairing balance sheets quickly enough to avoid default.
– Adam Fusco, editorial associate