As key suppliers to the oil and gas industry, oil field service providers rely on strong industry spending and activity to succeed. The industry consequences of Covid-19 and subsequent market turmoil have left these providers in a difficult position with all being directly and indirectly affected, for example through reduced drilling activity, major project deferral, or demand reduction for products and services. However, some companies are faring better than others.
Common themes amongst the peer group assessed include poor stock price performance, investment cuts for 2020 and a general debt reduction since the last downturn. Despite a healthy recovery in revenue from 2016 for the group, 2020 is set to reverse that trend and will likely drive revenue into multi-year lows.
Even though overall all six company metrics analysed will be impacted by the outbreak of Covid-19 and weakened commodity prices, the impact evaluation shows that Baker Hughes is the least impacted within the peer group assessed. The company has the lowest debt and has demonstrated a strong revenue and operating income performance recovery since the last downturn. The company’s financial strength is also evident in the relative stock price performance, which has shown some resilience amongst the peer group. As oil field services accounted for just over 50% of Baker Hughes 2019 revenue, the ability to leverage off other parts of the business such as digital solutions and turbomachinery during times of oil market volatility puts the company in a stronger position going forward.
The company which has been impacted the most within the peer group is Weatherford International due to its weak financial position, underperforming stock price and forced investment cuts. The company is at risk of re-entering into a Chapter 11 bankruptcy amid cash flow challenges and debt pressure. Having just emerged from a financial re-structuring in late 2019, the company is currently taking measures to cut costs further. It is expected that Weatherford will continue to underperform the peer group in the face of Covid-19 disruptions and weakened oil prices and may look to offload underperforming parts of the business to alleviate its debt burden.
After seeing a recovery in service costs and an increase in activity over the last few years, the 2020 market volatility will again bring the demand for many of the oil field services products and solutions into question. Those with a diverse set of products and digital solutions spanning across the whole oil and gas value chain are likely to be better positioned than those who rely heavily on upstream spending and activity.
