Rigging & Lifting: Equipment and Service Providers Brace for Another Year of Uncertainty

Over the past months, providers of equipment and services for the oil and gas industry, including lifting and rigging, have had to cope with the twin challenge of the Coronavirus pandemic and the crash in oil prices that plunged the oil and gas industry in the second downturn in less than five years.

The pandemic-driven collapse in oil and gas demand and prices crushed profits and profit margins, and the exploration and production (E&P) companies immediately started in March and April 2020 to cut capital expenditure (CapEx) budgets for the year. At the end of 2020, upstream firms were still cautious about their plans for 2021 as uncertainty continued to be prevalent on the oil markets. E&P also deferred some projects due to COVID-19 and the measures to contain the spreading of infections, especially to offshore rig personnel.

The oilfield services industry globally has lost many jobs since March 2020. The UK supply chain found itself again under increased pressure. Analysts say that the oilfield services industry will be the last to recover from the 2020 downturn as the supply chain typically feels the impact from the upstream with a lag of several months.

As the industry braces for another year of uncertainty in 2021, the UK supply chain is increasingly thinking of diversifying into renewables, especially offshore wind, which is now a key pillar of the UK’s plan for a green industrial revolution.

Slow Recovery

In 2020, most upstream companies slashed capital budgets and are unlikely to raise them significantly in 2021, even if the market will recover from the 2020 lows, Fitch Ratings said in a report in December 2020. Improvements, however, are set to be moderate and will lack certainty as oil demand is unlikely to recover to pre-pandemic levels by the end of 2021 unless there is a quick progress with mass vaccinations against the Coronavirus, the rating agency said.

“We expect most sub-sectors to show some improvements in 2021, but oilfield services (OFS) companies will continue to be under more pressure compared with companies in the upstream, midstream and downstream segments,” Fitch Ratings noted.

Oilfield Services Employment Declines

The downturn in 2020 has claimed thousands of jobs in the oilfield services industry.

In the United States alone, estimated job losses due to pandemic-related demand destruction totalled 91,680 as of early December 2020, with OFS employment down by 81,610 jobs since November 2019, the Petroleum Equipment & Services Association (PESA) said in a report about the job losses as of November 2020. U.S. services and equipment sector employment rose slightly for a third month, adding an estimated 2,665 jobs in November. But the losses since March have topped 91,000 jobs, with heaviest losses in April, at 58,738 jobs — the largest one-month total since at least 2013, PESA said.

In the UK, the leading representative body for the UK’s offshore oil and gas industry, OGUK, warned after the price crash that up to 30,000 jobs could be lost in the oil and gas sector, and called for the transition to net zero to be put at the heart of recovery plans.

UK Supply Chain Under Pressure

The sentiment among companies across the oil and gas industry declined significantly in 2020, OGUK said in November 2020 in the Autumn Snapshot of its Business Outlook 2020.

“Coming into 2020, OGUK members were expressing increased positivity in their outlook for the year ahead, in line with initial forecasts for stable investment and activity levels. However, the subsequent price collapse and necessary revisions to company business plans and strategies completely changed the industry landscape in a short period of time, as reflected in the sentiment levels seen throughout Q2 and Q3,” OGUK said.

In a sign that uncertainties in the market are likely to persist, companies haven’t changed much their outlook for 2021, according to the report.

“Companies across the supply chain continue to see revenue and margin reductions, and many are operating at unsustainably low levels. However, it will take time for the activities lost this year to be recovered and it is not simply a case of moving everything into 2021,” OGUK said. The industry association expects that it could take two to three years to re-phase and recover the activity lost from 2020.

Diversification Opportunities

Due to oil and gas market uncertainties, the UK’s oil and gas supply chain has stepped up this year diversification into industries other than oil and gas, the Energy Industries Council (EIC) said in a report in July.

According to EIC’s Survive and Thrive Insight report, which provided information from 40 representative energy supply chain businesses, 49% of those chose diversification as a strategy to grow their business during a market crisis. De-risking revenues to rely less on oil and gas was the most used growth strategy, the report found.

Although 90% of companies surveyed were active in oil & gas, 26% of them had already diversified into renewables, and 72% of businesses diversified into non-energy sectors such as infrastructure, industrial, and pharmaceuticals, EIC’s report found.

Many companies in the UK oil and gas supply chain have started looking to diversify in other sectors of the energy industry, OGUK said in its Economic Report 2020 in December.

More than 75% of OGUK supply chain members are already providing some services to industries other than oil and gas, an OGUK sentiment survey in the third quarter of 2020 showed. Moreover, 85% of OGUK supply chain members expect to boost their diversification efforts further over the next two years due to the current market conditions.

The UK offshore oil and gas and wind sectors, which have so far operated in relative isolation, now have the opportunity to create synergies by collaboration, Westwood Global Energy Group said in an analysis in November 2020.

The oil and gas sector’s experience in offshore infrastructure will be of most benefit in offshore wind, with foundations, structures, project management, vessel operations, working with moving cables, seabed surveys, and Operations and Maintenance (O&M), David Linden, Head of Energy Transition at Westwood, says.

“The oilfield support and services sector also has transferable assets and skills, such as in the provision of tugs, mooring systems, heavy lifting vessels and cabling. It is likely the most synergies will be realised in floating wind, as this will require a set of capabilities that many offshore wind players do not have,” Linden wrote.

EPC contractors and the supply chain could support offshore wind in the design, manufacturing, and installation, as well as in platform electrification and the repurposing of oil and gas infrastructure, primarily for green hydrogen, according to Linden.

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