Demand for the industry's oil drilling services will rise as pipeline infrastructure expands
Los Angeles, CA (PRWEB) June 05, 2013
The Oil and Gas Field Services industry has experienced volatile market conditions over the past five years. World commodity prices took a significant hit in 2009 due to the recession. Over the year, crude oil prices fell 36.3% while natural gas prices fell 39.9%. As a result, downstream oil and gas extractors experienced a revenue contraction of 36.7%, which subsequently lowered demand for industry services. Consequently, industry revenue fell 43.8% in 2009. While revenue has recovered since then, a combination of excess production and infrastructure shortages have resulted in declining domestic oil and natural gas prices, which has kept revenue growth low, says IBISWorld industry analyst David Yang. In the five years to 2013, IBISWorld expects revenue to increase at an average annual rate of 0.4% to $29.5 billion, including a 2.0% decrease in 2013.
Industry revenue rebounded strongly in 2010 and 2011 with double-digit growth during each of the two years. However, since then, revenue has contracted due to falling crude oil and natural gas prices. “Insufficient pipeline transportation capacity from Alberta oil sand reserves to Gulf Coast shipping terminals created a glut of landlocked crude oil, causing lower domestic crude oil prices. Similarly, the shale gas boom in the United States resulted in an excess supply of natural gas in North America, bringing down domestic natural gas prices,” continues Yang. As prices fell, downstream demand for oil drilling services decreased. In 2012, the number of active drilling rigs fell 13.1% as demand for drilling services declined. Industry operators had to charge lower rates for drilling services to maintain any downstream demand for their services.
Consequently, profit margins have declined over the past five years. The Oil and Gas Field Services industry has a low level of market share concentration. Although there are a number of international oilfield services companies, such as major players Baker Hughes Inc. and Schlumberger, operating in Canada, most industry firms are relatively small. Independent engineers and specialists can provide project management and other non-capital-intensive support services, allowing small operators to participate in this industry. Over the past five years, market share concentration has moderately increased, because a number of smaller operators exited this industry due to falling profitability. Additionally, major players have expanded their market share through acquisitions.
Over the next five years, the Keystone XL pipeline and other infrastructure projects are anticipated to be in-service, allowing downstream firms to more easily export crude oil and natural gas, and charge higher prices for these products on international markets, fuelling revenue growth. Consequently, demand for oil drilling services provided by industry operators will rise. Additionally, industry firms will be able to charge higher rates for drilling and support services, which will bolster profit margins. For more information, visit IBISWorld’s Oil and Gas Field Services in Canada industry report page.
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IBISWorld industry Report Key Topics
Industry operators provide support services to oil and gas extraction companies, and mining and quarrying companies. These services include drilling, reserve estimates, pressure pumping, cementing and well maintenance.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
About IBISWorld Inc.
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US and Canadian industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.