United States. High levels of natural gas production, largely infl uenced by shale gas deposit extraction using this indus- try’s technology, have led to an oversupply of the commodity and a shortage of transportation infrastructure to handle it. While the outcome of the Keystone XL pipeline project is still being determined, the project has the potential to seriously impact energy markets in North America. Furthermore, export restrictions on crude oil also have constrained price growth for domestically produced oil and gas. These regulations, which were implemented decades ago to protect the supply of oil in the United States, have recently been up for debate as demand for energy products in the developing world, especially in Asia, could positively impact the prices of crude oil and natural gas. Although there is much uncertainty surrounding regulatory actions during the next fi ve years, the industry could experience a boost in demand if regulations are relaxed, which would bolster domestic production.


500 1000 1500 2000 2500


0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


Despite this uncertainty, hydraulic fractur- ing and horizontal drilling are anticipated to maintain their signifi cant role in shale resource production. As investment in this sector continues to increase, technology is likely to improve during the next fi ve years. The environmental focus on the oil and gas sector ensures that the industry’s down- stream customers will continue to demand the highest-quality, most environmentally friendly products. Furthermore, the impor- tance of new technological development is expected to boost demand for highly skilled workers, a trend that will drive up wages an annualized 1.1% to $3.1 billion during the fi ve years to 2020. Despite higher industry wages, average industry profi t margins are anticipated to slightly increase during the next fi ve years. The lack of substitutes for industry products and the resulting inelastic nature of demand for the industry will help industry operators boost their performance during the fi ve-year period. Oil drilling equipment manufacturers are also anticipated to continue seeking trade partners overseas to bolster revenue. In the fi ve years to 2020, exports are anticipated to increase at an annualized rate of 1.5% to total $8.5 bil- lion. This represents nearly half of industry revenue in 2020. However, like the United States, international markets are


0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%


2010 2011 2012 % Dir % Horiz Source: Baker Hughes North America Rotary Rig Count 2013 % Vert 2014 2015 Source: Baker Hughes North America Rotary Rig Count


exposed to a wide range of risks, including currency fl uctua- tions, regulatory changes and geopolitical events. The ability of industry operators to supply global markets with oil drilling equipment will be important for industry operators to develop and maintain.


Summary


Overall, this year is poised to be challenging for the oil drilling equipment manufacturers. Continuing uncertainty over oil prices, regulations and infrastructure expansions will encourage companies to focus on internal operations and


Average Weekly Rig Count


Drilling Type (% of wells, weekly average)


rely on order backlogs to generate the bulk of their revenue. The largest companies in the industry, including Halliburton, National Oilwell Varco and Cameron International, will con- tinue to pursue acquisitions and cost management strategies to navigate the low price environment. However, the cycli- cal nature of the oil industry is well understood by industry operators, and as a result, IBISWorld anticipates the industry to perform strongly once oil prices recover and existing oil drilling equipment is decommissioned. Industry operators will continue to emphasize effi cient drilling equipment and tech- nology, as more effi cient machinery typically coincides with higher cost effectiveness and safety standards.


13 — Energy Manufacturing 2015


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