Supply-Chain Contracting Hits 16-yr Low: Rystad
Oil and gas supply chain companies banked a lousy $446bn in contracts last year, down 30% on the year to a 16-yr low, according to analysis by Norwegian consultancy Rystad.
Profits had been squeezed since the upstream cost cuttings of the previous downturn – "and just as the industry could finally hope for better days, the Covid-19 pandemic caused the value of 2020’s awarded contracts to slump to a 16-year low," it said.
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In 2004, the total was $317bn. In the absence of final investment decisions, the supply segment that declined the most in 2020 was construction and installation with a 59% drop, followed by equipment (-46%), stimulation (-45%) and engineering (-41%).
The supply segments that fared better (relatively speaking) were operational support with awarded contract value dropping 9%, subsea services (-9%) and offshore facility leasing companies (-11%). The only supply segment that managed to score better than in 2019 was maintenance, rising 2.1% in 2020 to $72bn.
“The past year has been a stormy one for the oilfield services industry. Out of the handful of contracts awarded, Brazil and Norway offered the lion’s share. Meanwhile, several already awarded contracts came under scrutiny, with many contractors receiving requests for revised prices,” Rystad said.
Even if 2021 proves to be a better year, the service industry will struggle to replicate former glories, especially as the entire energy industry is being pushed to embrace the energy transition and offer less carbon-heavy solutions, meaning that the supply chain will have to readjust. As the financial industry discriminates against oil and gas-related securities, company value is at risk, depending on their ability to carve out new business models, said Rystad.