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Equity and quasi-equity models for oilfield services companies

The global oilfield services (OFS) sector has suffered greatly due to the spectacular collapse of oil prices since 2014 and resulting restriction of capital budgets by exploration and production (E&P) companies worldwide. Now many argue that in order to survive; OFS companies must work together.

This toolkit explores both Equity and Quasi-Equity models and offers our insight on the potential contracting options for the OFS sector when rethinking their traditional strategies and business models.

View our Equity and Quasi-Equity Models for Oilfield Services Companies Toolkit (3MB / 12 pages).

 


 

Up until the collapse of oil prices in 2014, the innovation, equipment and technological know-how of the sector was generally in high demand, with oil and gas producers ramping up their capital investments annually, and OFS companies playing a central role in the rapid expansion in resource exploration.

Now many argue that - in order to survive - OFS companies must work together. Indeed, 2016 has seen Halliburton and Baker Hughes' failed merger attempt, as well as the fairly recent news of the proposed GE Oil & Gas and Baker Hughes mega-merger.

We are also seeing an increasing trend towards OFS companies working more closely with both international oil companies (IOCs) and national oil companies (NOCs). Such companies have embarked upon a more creative approach to contracting, with some opting to participate in more innovative risk-sharing arrangements in turn for potentially higher rewards. In the main, current practice is for E&P firms to draw up drilling plans in-house and subcontract out different aspects of the project to various suppliers. While this can be economically effective (so long as the process is well-managed and coordinated), many of these E&P firms find it difficult to simultaneously run a business and oversee the development of their projects.

There is great opportunity for OFS companies to challenge the traditional approach to contracting, and to engage in greater collaboration (both amongst each other and with the traditional E&P sector), propose integrated complex service offerings and enter risk-sharing contracts.

In the current oil and gas industry landscape, OFS firms are under increased pressure to offer a wider range of services to enable the traditional E&P companies to minimise their costs by boosting project efficiency. Many now argue that, in becoming a more holistic provider, an OFS company must therefore be able to clutch a larger piece of the now smaller remuneration pie.