Shale play survey results show oil price impact on services

By The Bakken Magazine Staff | October 20, 2015

Roughly 50 percent of all service companies operating within one of the major U.S. shale plays have seen work volume decreases, according to a survey completed by Citadel Advisory Group. After releasing its first oil and gas index survey in February, the Colorado-based advisory group has completed and released its second survey, this time testing the perspective of the energy services sector faced with low oil prices.

“The early summer West Texas Intermediate head-fake above $60 provided some temporary optimism to many people in the business. We wanted to see if the current down-leg into the $40s was putting additional pressure on service providers, and if so, how much and what was being done to weather the storm,” said Chris Frevert, managing director at Citadel.

To gather industry intel, Citadel opened its survey from August 11 to August 28. The survey results reveal the work volume impact oil prices have had on energy service firms and how those firms are dealing with the loss of revenue generation.
For nearly one-third of all survey respondents, price reductions of 10 to 15 percent were incurred from their top three customers. Further reductions are expected as well. Nearly half of the Respondents believe reductions in work compensation will be less than 10 percent in the future, while roughly 40 percent believe there will be no further price reductions.

Regardless of future service compensation reduction percentages, many service firms have already had to deal with reduced revenue. The number one method for internal cost reductions has been tweaking the workforce. Nearly 40 percent of all respondents said they have performed workforce reductions of 11 to 20 percent and another 19 percent of respondents reported a workforce reduction effort of 21 to 50 percent. However, 19 percent also reported that they had performed zero workforce reductions. Over the next three months, 40 percent of respondents also said they don’t plan to make any further workforce reductions.

Following workforce reduction, individual pay levels have been the next preferred internal cost reduction approach. Roughly one-fourth of those surveyed said worker pay has already been cut. Benefit programs have also been altered, along with a reduction in the number of company sites and the sale of assets, according to a range of 13 to 18 percent of all respondents.

Survey respondents from the Eagle Ford represented the largest percentage at 23 percent, followed by the Permian and Niobrara, each at 18 percent. Bakken survey respondents represented roughly 10 percent of total survey participant volume.

Nearly two-thirds of all entities surveyed have been involved in the oil and gas industry for more than 10 years, and, the same percent of firms believes 2015 gross revenue will be less than $25 million.

The survey showed that most in the industry don’t expect oil prices to recover by year’s end. “Most of these folks have been here before, and have the knowledge and determination to ride this out,” Frevert said.