Info!
The EI library in London is temporarily closed (re-opening on 1st June at the earliest), as a precautionary measure in light of the ongoing COVID-19 situation. The Knowledge Service will still be answering email queries via info@energyinst.org, and is available for live chats on this page during working hours (09:15-17:00 GMT). Our e-library is always open for members here: https://knowledge.energyinst.org/services/elibrary, for full-text access to over 200 e-books and millions of articles. We are sorry for any inconvenience.

OFS sector faces bankruptcies as Covid-19 slashes $5bn off the market

Decorative image

Around 20% of Europe’s mid- and small-sized oilfield service (OFS) companies, the vast majority of which are British or Norwegian, are set to become insolvent as the effect of the Covid-19 epidemic will hit the continent’s OFS market hard and cut purchases by about $5bn year-on-year, a Rystad Energy impact analysis shows.

The European service market, which was expected to stay largely flat this year from the 2019 level of $47bn in the market analyst’s pre-coronavirus estimates, is now facing a number of hurdles because of the outbreak. Cross-border travel limitations, supply insufficiencies, quarantines and capex reductions are only some of the market’s challenges.

‘This will have a pronounced effect on the European energy service market, which is heavily dependent on its international workforce and an efficient flow of goods and services between nations,’ says Audun Martinsen, Rystad Energy’s Head of Oilfield Service Research.

Most of the lost purchases – worth around $4.5bn are expected to hit Norway and the UK, mainly within the segments of MMO (maintenance, modifications and operations), drilling rigs and well services.

Bankruptcies will have to follow as a result, especially for mid- and small-sized suppliers which in the UK and Norway add up to more than 1,000 companies, adds Martinsen. As many as 20%, effectively more than 200 companies, could become insolvent, Rystad Energy estimates. More companies could be added to this number when the rest of Europe is included.

‘For Europe, this crisis is worse than the one that OFS companies experienced in 2015 and 2016 after the oil-price fall,’ says Martinsen, adding that a recovery back to 2019 levels is likely to happen from 2024.

A recent case from Norway stands as an example of the potential disruption caused by Covid-19, reports the market analyst – one person on board Equinor’s Martin Linge production platform, currently in the commissioning stage, tested positive for the virus, triggering a dramatic response that saw as many as 90% of the 780 personnel being sent back to shore.

For the oil and gas industry as a whole, the virus has played a significant role in the recent oil price crash, which, combined with the volatile markets, has pushed many field development projects out in time. This has hurt the bottom line of OFS contractors such as Aker Solutions, which recently sent out a warning to its 6,000 employees in Norway about likely temporary lay-offs in 2020. Such a fate could soon apply to many other engineering houses in Europe as well, suggests Rystad.

Figure 1: Oilfield service purchases in 2019 in Europe
Source: Rystad Energy

News Item details


Please login to save this item