Remember, the oilfield- services companies provide the equipment and services needed to produce the oil and gas as new wells are drilled and completed. As the rig count grows, the need for these various services increases. More wells equal greater demand for services . The inverse is also true... As the rig count declines, the need for services also diminishes. When the price of oil fell to less than $30 per barrel in January 2016, E&P firms didn’t have much use for these oilfield- services companies. Rigs were “stacked” – meaning
they were taken out of service. They’re put in a storage facility. Rig maintenance and upkeep cease... Therefore, the company saves the money that those tasks would typically cost. That led to a flurry of bankruptcies from drilling contractors and related oilfield- services companies. In 2015 and 2016, 111 public oilfield-services companies went bankrupt. We’re currently a little more than a year out since the U.S. rig count bottomed in May 2016. You can see in the following chart that
When oil and gas prices are high, more companies want to drill wells in order to make as much money as possible. On the flip side, low oil and gas prices lead to a reduction in drilling activity. The following two charts show you these relationships over the past three decades... While the rig count tells us what’s happening with oil and gas production today, it also gives us a glimpse into the current activity in the oilfield-services space.
54 | September 2017
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