COVID-19 hampers oil and gas services industry business outlook

COVID-19 hampers oil and gas services industry business outlook

The COVID-19 pandemic impact has devastated crude oil demand as the majority of the end user industries are witnessing a slowdown amid lockdowns. This market environment coupled with crude oversupply concerns is creating an imbalance resulting in a crude price crash. Companies across the oil and gas value chain are re-evaluating their capital expenditure (capex) guidance as well as re-aligning their operations to offset the slowdown in demand. This is leading to delays and deferrals in project execution and having a negative impact on the services industry, according to GlobalData, a leading data and analytics company.

The company’s report: ‘COVID-19 Impact and Response of Oil and Gas Services Industry’ analyses the impact and response of the COVID-19 pandemic on the global oil and gas services industry in terms of market capitalization, workforce, supply chain, and capex/operational expenditure (opex).

The global oil and gas services industry has witnessed an important business barometer, the recent rig usage decline has resulted in less utilization of oilfield equipment and services. The service industry also faces key challenges with supply chain, workforce management and cost overrun challenges for EPC projects across the value chain. Even major O&M/turnaround maintenance projects are being pushed back as companies focus only on critical operational maintenance to manage opex.

Pritam Kad, Oil & Gas Analyst at GlobalData, comments: “Lower crude demand and an oversupplied market is creating an imbalance in the industry. Furthermore, capex reduction by oil and gas majors amid a difficult operating environment is resulting in a depressed business outlook for the overall services industry. Market capitalization of oil and gas services companies has declined substantially and companies are now facing numerous challenges, such as increasing pressure on contract pricing, discounts, margins, compliance, negotiations as well as liquidity and financing, supply chain and workforce management.”

In response to the challenges in the oil and gas services industries, service companies are announcing measures, such as capex-opex reduction as per client’s re-alignment and halting non-critical activities to manage liquidity and stay afloat. These companies are also optimizing resource strength by adopting a furlough/lay-off strategy, as many projects are either temporarily put on hold, withdrawn or delayed. Additionally, service companies are also re-evaluating their existing supply chain structure and finding ways to manage equipment supply and project risks.