overview Photo courtesy US Geological Survey/photo by Doug Duncan A Shifting Landscape
In 2012 when this photo of a hydraulic fracturing drill site was taken, the Marcellus Shale play in southwestern Pennsylvania was a hotbed of activity.
and acquisition opportunities in the near term. IBISWorld an- ticipates that employment in the industry will decline by 4.8% in 2015, and the number of industry operators is projected to decline by 1.8% during the year. One of the most high-profi le industry events to have
occurred in the past fi ve years is Halliburton’s $34.6 billion acquisition of competitor Baker Hughes in November 2014. Though still awaiting approval, this acquisition will solidly ce- ment the combined company atop the industry if approved. Acquisitions are commonplace in the industry, as large companies must continuously seek high-value assets and technology to remain competitive on a national scale. How- ever, as market conditions improve over the next fi ve years, IBISWorld anticipates that market entry will outpace the rate of acquisitions in the industry. Over the fi ve years to 2020, IBISWorld estimates that the number of industry operators will expand at an annualized rate of 1.5% to 647. The major- ity of industry entrants will likely be regional and specialized product and service providers.
In 2015, most major companies in the industry expect a slowdown in new orders. National Oilwell Varco, for example, expects that its revenue from backlogs will exceed revenue from new orders. Halliburton also expects that 2015 will provide a challenging business environment for its indus- try relevant segments. As upstream oil and gas companies scale back operations and reposition existing assets rather than purchase new equipment, companies in the Oil Drilling Equipment Manufacturing industry will have to emphasize providing high-value services to customers.
Though challenges will persist in the short term, the overall outlook for oil drilling equipment manufacturers is bright. Low oil prices are antici- pated to reverse in the fi ve years to 2020, and in the process, the indus- try’s customers will likely increase investment budgets for equipment. As oil wells become more complex to drill and resources diminish, upstream oil and gas companies must rely on more effi cient and tech- nologically advanced equipment. Consequently, oil drilling equipment manufacturers will be well positioned to provide solutions and products to customers.
Since 2010, the number of
horizontally drilled wells has drastically increased. According to Baker Hughes’ rig counts, in April 2010 horizontal wells accounted for 50.2% of active rigs, and this percentage has risen to 77.7% in April 2015. Likewise, the split of oil and gas rigs has drastically shifted over the period. In April 2010, oil rigs accounted for 34.3% of active rigs, while in 2015 oil rigs account for 78.0%. Over the next fi ve years, IBISWorld anticipates the overall share of oil rigs and horizontal drilling will persist at current levels. These overall shifts also played a role in the overall success of the Oil Drilling Equipment Manu- facturing industry in the fi ve years to 2015. Rig counts have declined drastically since the price of oil began its slide. As of April 2, 2015, the number of rigs in North America was 1128, compared to 2053 a year prior. In fact, over the same period, every major basin in North America registered declines in the number of active rigs over the year. Uncertainty in oil markets will undoubtedly persist over the next fi ve years, as there has yet to be a concrete fl oor on oil prices. Furthermore, the potential for exogenous shocks remains constant, and as a result, industry operators will continue to focus on internal restructuring and acquisition opportunities to weather the current price environment.
Uncertainties Loom
The United States is expected to maintain its focus on developing a more self-suffi cient energy production model, and industry operators will likely benefi t from this trend. The shift towards the nation being an energy producer rather than solely a consumer has already altered energy markets in the
12 — Energy Manufacturing 2015
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