China's oilfield service providers to feel more pain in 2015 amid oil slump
Mainland oilfield services providers have another tough year ahead, with profit margins squeezed by cost-conscious customers demanding fee reductions and better operating efficiency, as they strive to keep their drilling rigs and equipment employed amid falling demand.
Mainland oilfield services providers have another tough year ahead, with profit margins squeezed by cost-conscious customers demanding fee reductions and better operating efficiency, as they strive to keep their drilling rigs and equipment employed amid falling demand.
The biggest determinant of the fortune of oil and gas producers and their service providers is the price of oil, which analysts expect to face headwinds in its recovery after falling in January to a six-year low.
Other market factors include the strong US dollar in which oil is priced, flat demand in developed nations, slowing economic growth on the mainland and a potential lifting of economic sanctions against Iran that would add supply to the global market.
"Oil prices will remain weak and volatile in 2015, and aggregate global exploration and production capital spending will be down about 25 per cent from 2014 levels," analysts at ratings agency Moody's said in a report.
If the Brent crude oil price benchmark averaged US$55 a barrel this year, the global oilfield service sector's operating profit is projected to fall 25 per cent to 30 per cent, they said, and by more than 35 per cent if it averaged below US$45.
"[Service firms] that are diversified across products and geographies, own high quality assets, have some term contract protection or revenue backlog, or serve financially strong oil companies will endure less damage to their credit profiles," they said. "We expect more [drilling] rig stacking, asset write-downs, delayed rig deliveries, and contract modifications and terminations."