What are the Key Indicators of the Oilfield Services Industry?

Some of the significant key indicators of the oilfield services industry are equipment orders, backlogs, and day rates.

FREMONT, CA: In the upstream sector of the energy industry, oilfield equipment and services (OFS) refers to all products and services associated with oil and gas exploration and production. Generally, these companies manufacture, repair, and maintain oil extraction and transportation equipment.

In addition to good construction, production, and completion services, seismic testing, transport services, and directional services for horizontal drillers are generally what most people think of when they think of oilfield services companies. OFS offers a wide range of products and services, including many technology-based services vital to field operations. A few examples of these services are locating energy sources, managing energy data, evaluating drilling and formations, and geological sciences.

OFS offers a wide range of products and services, including many technology-based services vital to field operations. A few examples of these services are locating energy sources, managing energy data, evaluating drilling and formations, and geological sciences.

Larger OFS companies such as Schlumberger and Halliburton have capitalized on technology-based services to meet the growing demand in this subsector as a result of technological innovation. Companies such as Helmerich & Payne continue to provide legacy services, including rig and equipment manufacturing, drilling services, and products.

Oilfield Services Industry Drivers and Indicators: OFS companies earn revenue primarily from the capital and operating expenditures of E&P companies, which in turn are influenced by future oil and natural gas prices.

Several other factors also play a role (advances in technology, climate, seasonality of spending, financing availability, political factors, etc.), but ultimately, supply and demand balance and market fundamentals are what determine investment incentives for these companies. Following is a list of non-exclusive leading indicators used to gauge OFS demand and outlook:

Orders for equipment: It is critical for any manufacturing company to maintain a steady stream of new orders, and this is no different in the OFS sector. The OFS industry typically announces major equipment orders, such as rig orders, floating production storage, and offloading (FPSO) orders, underwater equipment orders, drilling packages, etc. Insights into demand across various service lifecycles can be gained from these announcements.

The backlog: Like engineering and construction companies, many OFS companies announce backlogs to gauge their business health. Since the backlog is not an inspected measure and its definition varies from company to company, it cannot be taken at face value. While a sufficient backlog means the company is busy, backlogs that extend too far out require some give and take. The timeline for backlogged projects can range from a few months to several years unless management specifies otherwise. The purpose of analyzing company backlog is to provide an indication of the value of revenue not yet recognized and the demand for future services.