More than 200 European oilfield service providers face bankruptcy
More than 200 European mid- and small-sized oilfield service companies face insolvency as Covid-19 will hit the market hard and cut purchases by USD 5 billion year-on-year, a new analysis by Rystad Energy shows.
In pre-coronavirus estimates, the European OFS market was expected to stay largely flat this year compared to the 2019 level of USD 47 billion, but the industry is now facing a number of hurdles because of the outbreak. “For Europe, this crisis is worse than the one that OFS companies experienced in 2015 and 2016 after the oil-price fall”, says Audun Martinsen, Rystad Energy’s Head of Oilfield Service Research.
Following the outbreak of the coronavirus, OPEC wanted to introduce additional production cuts in response to the lower demand. Russia, however, refused to go along with this leading to a dispute with Saudi Arabia which has sent the oil price into freefall. A barrel of Brent oil currently sells for 28 US dollars.
For Europe, this crisis is worse than the one experienced in 2015 and 2016 after the oil-price fall.
Cross-border travel limitations, supply insufficiencies, quarantines and Capex reductions are only some of the market’s challenges, Rystad Energy states. “This will have a pronounced effect on the European energy service market, which is heavily dependent on its international workforce and efficient flow of goods and services between nations,” says Martinsen.
Most of the lost purchases, worth around $4.5 billion, are expected to hit Norway and Britain, where the vast majority of European OFS-providers are located, and mainly within the segments of MMO (Maintenance, Modifications and operations), drilling rigs and well services.
Rystad Energy expects a large number of bankruptcies to follow as a result of the problems. There are over 1,000 small- and mid-sized suppliers in the UK and Norway together and as many as 20% could become insolvent, the analysts estimate. More companies could be added to this number when the rest of Europe is included.
A number of Norwegian oilfield service providers have already announced lay-offs, according to Norwegian newspapers Aftenbladet and E24. Beerenberg is cutting 70% of its 1,300 employees, while Kaefer Energy has announced that 1,500 people will be sent home. AkerBP has reportedly already 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 rival engineering houses in Europe as well”, Rystad Energy states. The analysts do not expect the market to recover to 2019 levels before 2024.
In addition to the lower oil price, the daily operations of oil producers have become far more difficult as well. Last week, one person on board Equinor’s Martin Linge production platform, which is currently in the commissioning stage, tested positive for the coronavirus. This triggered a dramatic response that saw as many as 90% of the 780 personnel being sent back to shore.
In response to the virus, Equinor has established a corona crisis team to handle both short-term immediate response and long-term implications. “The outbreak of the coronavirus and the fall in commodity prices will impact Equinor for a long time. We are a robust company with a strong balance sheet but it will be necessary to take forceful action to reduce risk, protect our business and operations and to ensure the long-term robustness of our company. I have therefore asked Pål Eitrheim to lead our work on this and it will be on top of the agenda”, says Equinor’s CEO Eldar Sætre.
The Norwegian oil major has already implemented significant measures to limit the spread of the coronavirus including reducing and delaying non-critical tasks at fields and plants, implemented procedures for working from home and taken strict travel restrictions and quarantine measures. Union’s expect thousands of employees in the Norwegian oil and gas industry to be laid off.