ABERDEEN, UK – Colin Welsh, CEO of Simmons & Company International Ltd., believes the next decade could be a golden era for oilfield services companies if crude prices remain at present levels.
"At existing commodity prices, the oil and gas industry can support strong levels of spending. OPEX and CAPEX spend will rise by around 18% this year, which will result in rising revenues and profits for oil service companies. This trend looks set to continue in the absence of a double dip in the economy or other financial trauma.
“The prospects for companies in the oil services sector are more positive than ever, as international and deepwater activity ramps up, emerging market demand drives up commodity prices, and unconventional energy in the US and Europe starts to get exploited. We are indeed entering a significant period of growth – a golden era – for oilfield service companies.”
“It is comforting that in the recent period of economic and market volatility Brent crude has resisted the temptation to fall below $100 a barrel and WTI has been in the low $80's more often than it has been in the high $70's.
“At these levels, exploration and production companies are still making good money, and as long as there is confidence in that continuing, oilfield spending will keep increasing.
“The significantly higher prices from the lows of 2009 have been largely driven by the high rates of growth in emerging markets in India and China and also the Middle East, coupled with shrinking spare supply capacity. The IEA has confirmed that we are entering a phase where the supply/demand balance is tightening. On top of that there is the underlying threat of interruption of supply caused by uncertainty in the Middle East.
“Gas prices have also risen, largely as a result of Chinese demand growing and nuclear capacity in Germany and Japan coming off-line. With other countries potentially following suit, the biggest and best alternative to nuclear is natural gas. With 60 years of gas reserves already identified, gas is plentiful, cheap and clean-burning. We are now entering what has been characterized as the golden era of gas, and that will be reflected in E&P budgets.
“Taking all this into account there is the potential for very strong growth, akin to a mini-internet boom, particularly for the industry’s service companies.”
Welsh said that this golden era for oilfield services represents a huge opportunity for Scotland and the UK.
“The North Sea has become the seat of offshore and deepwater learning. With future production growth coming from areas like Brazil, West Africa and the Arctic, Scottish and UK oilfield services companies have significant overseas potential to deploy their expertise in these domains.
“On the domestic front there is no doubting the damaging impact of the Chancellor’s tax hike. This will result in early decommissioning of mature fields and some new fields not being developed, which will make the short-term prospects for the North Sea more muted, relative to what might have been.
“But overseas, it is all to play for and our home-grown companies must capitalize on this opportunity. Equally, if Aberdeen and indeed the UK are to continue to benefit from oil and gas in the long-term, there must be greater recognition of the importance of the oil and gas industry by politicians who see the industry as a vote loser and are obsessed with renewables. This in turn must lead to support for the infrastructure and skills required by the oil and gas industry.
“Aberdeen can no longer be complacent. The city is competing on a global stage to attract and retain energy companies. It must have the right infrastructure in place to make it both competitive and attractive to business and to the employees these businesses need to recruit. This must include significantly improved connectivity both physical and digital, a step-change in skills development, transformation of our city center and a can-do attitude to supporting and attracting business.”