Emerging Markets Focus
MENA Region’s Oilfield Services Written by Nawaf Marafi, Ali Rampurwala and Rajiv Bishnoi from Kuwait Financial Centre “Markaz”
In our view, 2011 and the near-future, represent exciting times for the oilfield services (OFS) segment, both globally as well as in the Middle East & North Africa (MENA) region. As a result of the changing stance of National Oil Companies (NOCs), increasingly favorable policies of local governments, reopening of the financial markets, and growth in regional entrepreneurial talent, opportunistic regional OFS companies stand to benefit significantly in the near-future. We also believe that the opportunity to build indigenous regional OFS companies is fundamentally underexploited.
The Global Quotient
According to GBI Research, the global OFS market is expected grow at a compound annual growth rate (CAGR) of 7.3% from $131 billion in 2009 to $200bn by 2015. Similarly, Barclay’s estimates that the global E&P capital expenditure will reach $490bn in 2011 highlighting the strong business potential for OFS companies.
This is further underscored by the estimates of the International Energy Agency (IEA) that more than 80% of producing assets globally, are in rapid decline and the resulting need for supporting OFS companies to provide the necessary technology and know-how to maximize recovery and improve efficiency.
The Regional Quotient
The MENA region’s OFS expenditure is expected to grow from approximately $11 billion in 2010 to approximately $13 billion by 2012, as per Douglas-Westwood. Whereas, the region’s onshore and offshore drilling and work over expenditure on OFS was approximately $7.7bn in 2007, and is expected to increase by 61% to reach $12.4 billion by 2012, and $27.9bn by 2014.
The number of rigs working the market is normally a good leading indicator for assessing the OFS segments growth or shrinkage trends. Growth in rig count is usually associated with higher demand, both due to an increasing scale as well as enhanced service intensity.
The rig count across the MENA region has been in an upward trend over last few years, despite a minor dip in 2008-09 due to the global financial crisis, and is expected to continue upwards in the near-term indicating that the OFS sector in the region can witness sustainable steady growth.
The Landscape
From a demand perspective, OFS in the MENA present a clear and obvious opportunity. Notwithstanding, the supply side of the equations paints an erratic picture, whereby many of the regional firms are poorly positioned to exploit the same.
In particular, the MENA region OFS industry structure is highly fragments, with approximately 19,478 companies operating in the Oil & Gas sector in the MENA region, as per recent estimates. Most of these are concentrated in the UAE and are largely operating under agency type agreements with foreign entities.
Drillers and Dealers :::
::: February 2011 Edition
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