The demand for oil and gas in the world has been rising over the last few decades. This is driven by many factors which includes increased global economic activities. Exploration and production of oil and gas resources has responded to this demand by more and efficient extraction of hydrocarbons across the world. This is where oil and gas services come in.
You might ask, what are oil and gas services?
Oil and gas services are considered to be a supportive part for the oil exploration and production companies. They are services that include oil well maintenance, completion, production, supply, and logistical support services in both onshore and offshore. In general oilfield services market contains oilfield services, companies manufacture, repair, and maintain equipment used in the extraction and transport of oil.The global oilfield services market is forecasted to reach USD 171.7 billion in 2025 from USD 135.1 billion in 2020, growing at a CAGR of 3.6%.
In general these oil and gas service companies are engaged in the manufacturing, repair, and maintenance of equipment used in oil extraction and transportation.
Products such as seismic testing, transport services, and directional services for horizontal drillers in addition to well construction, and production and completion services are generally what most would typically think when an oilfield services company comes to mind.
However, the range of products and services under the oil and gas services umbrella is wide and include many technology-based services that are vital for successful field operations.
Such services include locating energy sources, energy data management, drilling and formation evaluation, geological sciences, and many others. This oilfield services (OFS) industry includes services such as seismic services, formation evaluation, drilling, well construction, production services and well completion services.
Today, some of the oilfield services companies such as Schlumberger and Halliburton have shifted their offers to more technology-based solutions which increases efficiencies. Other OFS players like Helmerich & Payne focus on services which include drilling rigs, equipment manufacturing, drilling products and services.
You can track these companies on an ETF tracking index called VanEck Vectors Oil Services ETF.
How Oil and Gas Industry Works
The oil and gas industry is one of the largest sectors in the world in terms of dollar value, generating an estimated $3.3 trillion in revenue annually. Oil is crucial to the global economic framework, especially for its largest producers: the United States, Saudi Arabia, Russia, Canada and China.
Investors looking to enter the oil and gas industry can quickly be overwhelmed by the complex jargon and unique metrics used throughout the sector. This article is designed to help you understand the fundamentals of companies involved in the oil and gas sector by explaining key concepts and the standards of measurement.
The oil and gas industry is broken down into three segments: upstream, midstream, and downstream.
Upstream, or exploration and production (E&P) companies, find reservoirs and drill oil and gas wells. Midstream companies are responsible for transportation from the wells to refineries and downstream companies are responsible for refining and the sale of the finished products.
Drilling companies contract their services to E&P companies to extract oil and gas.
Well-servicing companies conduct related construction and maintenance activities on well sites.
What do Oil and Gas Services Companies Do?
You might be asking or wondering what oil and gas servicing companies do. The truth is that they do a lot, and provide lots of services in support of oil and gas exploration activities.
For example, they construct rigs, design pipes and pipelines, provide engineering services, carry out construction and technical works which ranges from mechanical, electrical to supplies of goods.
You will also find others who provide such services as hospitality or catering services, security, transport and logistics among others.
OFS providers in their modern form arose through a combination of factors dating back to the oil price slump in the late nineties and the mega-mergers of BP-Amoco in 1998 and Exxon-Mobil in 1999. Mergers of this size allowed for synergies of logistics and allowed for restructuring and optimization of assets.
While the advantages of these mergers were clear in the downstream segment, the impact for upstream was not so apparent. In fact, the in-house ownership of these various types of services created inefficiencies and redundant cost centers that made it expensive to provide necessary upstream services without impacting the bottom line.
These factors and segment trimmings enabled the development of a specialized oilfield service industry, which today provides the majority of the technology and innovation essential across the life cycle of an oil and gas development.
The rationale for the outsourcing of service capability can be summarized in three key points:
- Economies of scale – Specialization of companies in the service chain allows for intense competition among suppliers while also facilitating technical innovation. In-house ownership of services might not have provided the rapid rise of such competition and technology advances that the industry has seen over the last couple of decades.
- Capital efficiency – A service company able to supply a wide range of clients large/small public, government-owned and independents would expect to be able to achieve higher rates of utilization for their assets and therefore better return on capital employed than could an E&P company limited by their own inventory.
- Accountability – Third-party service providers arguably allow for increased accountability and efficient creation of reward structures between operator/contractor. However outsourcing may lead to greater operator risk, execution delays, and even contract mispricing.
Who is the biggest oilfield service company?
You should be aware that Schlumberger is the world’s biggest oilfield services company. For example, the company earned $32.81Bn in revenues as recorded in their 2018 full year results. This was a 7.8% increase from the 2017 revenues of $30.44Bn
Which oil company is the richest?
Exploration and production companies usually require oil and gas services. This is to help them extract the hydrocarbon resources from the ground.
Saudi Aramco is the richest and most profitable oil company in the world. To show you how profitable this company is, it generated $111.1 billion in net income in 2018.
This exceeded Apple. The second most profitable company with a net income of $59 billion.
In Nigeria, Shell Petroleum tops as richest oil company in Nigeria with US$388.4 billion (2018) in revenue.
Drilling as An Example of Oil and Gas Services
In oil and gas exploration, drilling rigs are used to dig into the earth’s subsurface to extract oil and gas resources. These resources are mainly crude oil or natural gas.
An oil drilling rig consists of a set of equipment that perform a variety of services which includes sampling deposits, testing the physical and chemical properties of the rock, soil and groundwater, and tunnelling and drilling.
Transocean and Ensco are two of the largest rig contractors.
You should know that rigs can be land-based or marine-based structures. These are commonly referred to as onshore and offshore rigs respectively. The variety of the rig depends pn the location, type and drilling technique to be used.
World’s Biggest Offshore Drilling Companies
- Nabors Offshore – $3.05bn. …
- China Oilfield Services Limited (COSL) – $3.17bn. …
- Saipem – $4,27bn. …
- Weatherford – $5.74bn. …
- Petrofac – $5.83bn. …
- Baker Hughes – $22.9bn. …
- Halliburton – $23.99bn. …
- Schlumberger – $32.8bn.
Factors that Drive the Oilfield Services Industry
At its core, the revenue of the OFS companies is a function of the capital and operating expenditure of the E&P companies, which is in turn governed by current and future expectations of the price of oil and natural gas.
There are of course several other factors that come into play such as advances in technology, climate, seasonality of spending, availability of financing and political factors.
However, it is the supply and demand balance and market fundamentals which determine incentives for investment by these companies.
Below is a non-exclusive list of leading factors that are used to gauge the outlook and demand across the oil and gas services sector:
- Exploration and Production Capital Expenditure Budgets – Size of capex budgets will ultimately determine how the OFS industry will perform as whole. E&P companies will typically begin drafting capex budgets for the next year in the final quarter of the current year. Many will then announce their forward spending plans, strategy, and quarterly/annual results to the market through quarterly earnings calls and press releases. These calls and news releases tend to be closely watched as a leading indicator of future demand. However, historical trends before the oil collapse in 2014 showed that large companies tended to overspend whereas companies at year end 2018 have been tight on capex budgets, even in rising oil price environments. Lean budgets will push the use of third party services down the priority list resulting in hard hits to an OFS company’s revenue stream.
- Rig and Well Counts – Historically, one of the most closely followed measures of the level of demand for the OFS industry is the active rotary rig count. Baker Hughes began publishing the North American active rig count on a weekly basis since 1944 and initiated the monthly international rig count in 1975. Rig counts have historically been treated as a business barometer for the drilling industry and its suppliers. The thought is when drilling rigs are active, they consume products & services produced by the OFS industry; however, well counts have been trending towards being the primary leading indicator of profits. The reason is in part due to “pad drilling”, in which multiple wells are drilled from one site. Combined with technological advances and logistical efficiencies, having multiple wells per pad in a shale play has a greater effect on performance in a given area. In essence, fluctuating well counts on a seemingly stagnant overall rig count provide a different picture of the health of the sector. Therefore tracking well counts in the last decade has improved predictive power than indications provided solely by rig counts.
- Day-rates – Day rate refers to all in daily costs of renting a drilling rig, and roughly makes up half of the cost of an oil well. The operator of a drilling project pays a day rate to the drilling contractor who provides the rig, the drilling personnel and other incidentals. The oil companies and the drilling contractors usually agree on a flat fee per contract, so the day rate is determined by dividing the total value of the contract by the number of days in the contract. Although less easily observable, it is also possible to track trends through day rate announcements for other less ‘liquid’ marine sectors, such as seismic vessels, supply boats, support vessels and installation/heavy-lift vessels. Analyzing day rates in combination with metrics like rig utilization allows investors to gain insight into the overall supply and demand picture of the OFS industry at large. When day rates increase, this implies decreased supply of OFS providers or increased demand for their services.
- Equipment orders – A steady stream of new orders is critical of any manufacturing company, and it is no different with OFS sector. It is customary for OFS companies to announce major equipment orders, i.e. rig orders, floating production storage and offloading (FPSO) orders, underwater equipment orders, drilling packages, etc. and these announcements provide useful insights as to the level of demand across various parts of the service lifecycle.
- Backlogs – Similar to engineering and construction companies, many OFS companies announce backlogs as a snapshot of the health of their businesses. Since backlog is not an audited measure and its definition can vary from company to company, it is not a hard and fast figure that should be taken at face value. While a sufficient backlog typically means the company is busy, there is give and take for backlogs that extend too far out. Unless specified by management, the timing of backlogged projects can be fairly unpredictable with durations as short as a few months to as long as a few years. But the general thought in analyzing company backlog is to provide an indication of value of revenue not yet recognized and demand for services to be rendered in the future.
Oil and Gas Services Basics – Where it all begins
Hydrocarbons make up crude oil and natural gas, which are naturally occurring substances found in rock in the earth’s crust. These organic raw materials are created by the compression of the remains of plants and animals in sedimentary rocks such as sandstone, limestone and shale.
The sedimentary rock itself is a product of deposits in ancient oceans and other bodies of water. As layers of sediment were deposited on the ocean floor, the decaying remains of plants and animals were integrated into the forming rock. The organic material eventually transforms into oil and gas after being exposed to specific temperatures and pressure ranges deep within the earth’s crust.3
Oil and gas are less dense than water, so they migrate through porous sedimentary rock toward the earth’s surface. When the hydrocarbons are trapped beneath less-porous cap rock, an oil and gas reservoir is formed. These reservoirs of oil and gas represent our sources of crude oil and gas.
Hydrocarbons are brought to the surface by drilling through the cap rock and into the reservoir. Once the drill bit reaches the reservoir, a productive oil or gas well can be constructed and the hydrocarbons can be pumped to the surface. When the drilling activity does not find commercially viable quantities of hydrocarbons, the well is classified as a dry hole, which is typically plugged and abandoned.
Upstream, Midstream, Downstream
The oil and gas industry is broken down into three main segments: upstream, midstream and downstream.
Upstream businesses consist of companies involved in the exploration and production of oil and gas. These are the firms that search the world for reservoirs of the raw materials and then drill to extract that material. These companies are often known as “E&P” for “exploration and production.”
The upstream segment is characterized by high risks, high investment capital, extended duration as it takes time to locate and drill, as well as being technologically intensive. Virtually all cash flow and income statement line items of E&P companies are directly related to oil and gas production.
Midstream businesses are those that are focused on transportation. They are the ones responsible for moving the extracted raw materials to refineries to process the oil and gas. Midstream companies are characterized by shipping, trucking, pipelines, and storing of the raw materials. The midstream segment is also marked by high regulation, particularly on pipeline transmission, and low capital risk. The segment is also naturally dependent on the success of upstream firms.
Downstream businesses are the refineries. These are the companies responsible for removing impurities and converting the oil and gas to products for the general public, such as gasoline, jet fuel, heating oil, and asphalt.
Understanding Oil Production Numbers
E&P companies measure oil production in barrels. One barrel, usually abbreviated as bbl, is equal to 42 U.S. gallons. Companies often describe production in terms of bbl per day or bbl per quarter.
A common methodology in the oil patch is to use a prefix of “M” to indicate 1,000 and a prefix of “MM” to indicate 1 million. Therefore, 1,000 barrels are commonly denoted as Mbbl, and 1 million barrels are denoted as MMbbl. For example, when an E&P company reports production of seven Mbbl per day, it means 7,000 barrels of oil per day.
Gas Production Numbers Explained
Natural gas production is described in terms of cubic feet. Similar to the convention for oil, the term Mmcf means 1 million cubic feet of gas. Bcf means 1 billion cubic feet and Tcf represents 1 trillion cubic feet.
Note that natural gas futures trade on the CME Group futures exchange, but are not measured in cubic feet. Instead, the futures contract is based on 1 million British thermal units, or MMBtu, which is roughly equivalent to 970 cubic feet of gas.10 For this reason, investors frequently think of an Mcf of gas as being roughly equivalent to one MBtu.
E&P companies often describe their production in units of barrels of oil equivalent (BOE). To calculate BOE, companies usually convert gas production into oil equivalent production.
In this calculation, one BOE has the energy equivalent of 6,040 cubic feet of gas or roughly one bbl to six Mcf. Oil quantity can be converted into gas quantity in a similar fashion and gas producers often refer to production in terms of gas equivalency using the term Mcfe.
E&P companies report their oil and natural gas reserves—the quantity of oil and gas they own that is still in the ground—in the same bbl and mcf terms. Reserves are often used to value E&P companies and make predictions for their revenue and earnings. Public oil and gas companies are required to disclose proven oil and gas reserve quantities as supplementary information, but not as part of their financial statement.12
Of course, new reserves are an essential source of future revenue, so E&P companies spend a lot of time and money exploring for new untapped reservoirs. If an E&P company stops exploring, it will have only a finite amount of reserves and a depleting quantity of oil and gas. Revenue will inevitably decline over time. In short, E&P companies can only maintain or grow revenue by acquiring or finding new reserves.
Drilling and Service Companies
E&P companies do not usually own their own drilling equipment or employ a drilling rig staff. Instead, they hire contract drilling companies to drill wells for them and the contract drilling companies generally charge for their services based on the amount of time they work for an E&P company. Drillers do not generate revenue that is tied directly to oil and gas production, as is the case for E&P companies.
Once a well is drilled, various activities are involved in generating and maintaining its production over time. These activities are called well servicing and can include logging, cementing, casing, perforating, fracturing, and maintenance. Oil drilling and oil servicing thus represent two different business activities within the oil and gas industry.
As is the case for drilling, many public companies are involved in well service activity. The revenue of service companies is tied to the activity level in the oil and gas industry. Rig count and utilization rates are indicators of the amount of activity happening in the United States at any given time.
Oil and Gas Service Companies
Service companies work across all the phases of production. These are firms like Halliburton and Baker Hughes.. They provide services like engineering, fluid hauling, maintenance, geological surveying, non-destructive testing, and so on. Although they work across all the phases, oil service firms make the most money when upstream production is booming.
On the midstream and downstream, oil service firms see regular income that can see them through dips in upstream activity, but it is the upstream activity is a huge driver of revenue. This is because they have new business coming in and new projects to bid on.
Refinery Oil and Gas Services
Oil refining is a purely downstream function, although many of the companies doing it have midstream and even upstream production. This integrated approach to oil production allows companies like ExxonMobil, Shell, and Chevron to take oil from exploration all the way to sale. The refining side of the business is actually hurt by high prices, because our demand for many petroleum products, including gas, is price sensitive. However, when oil prices drop, selling value-added products becomes more profitable.
There are some purer refining plays, like Marathon Petroleum Corporation, CVR Energy Inc, and Valero Energy Corp. These companies enjoy lower energy prices, and benefit from stronger U.S. production because crude cannot be exported; only the refined products can be. This means that refiners have the whole of the shale oil supply to work with, and their input costs have dropped with the new supply.
One area service companies and refiners agree on is creating more pipeline capacity and transport. Refiners want more pipeline to keep down the cost of transporting oil by truck or rail. Service companies want more pipeline because they make money in the design and laying stages, and get a steady income from maintenance and testing.
Top 10 Oil and Gas Services Companies – Oilfield Services Market
Founded in 1926 and headquartered at Houston, Texas; Schlumberger Limited provides a comprehensive range of technology, product, and services to the oil and gas industry.
The company operates through four business segments, namely Reservoir Characterization, Drilling, Production, and Cameron. Its reservoir characterization segment provides services to western geco, wireline, testing services, one surface, software integrated solution, and integrated service management.
Also, its drilling segment offers bits and drilling tools, M-I SWACO, drilling and measurements, land rings and integrated drilling services. In addition, company’s production segment offers services to well, one stem, completions, artificial lifts, integrated production services and as well as cameron segment involved in pressure and flow control for drilling and intervention rings, oil and gas wells and production facilities.
With operating facility in more than 85 countries, the company has its geographic presence across North America, Europe, Middle East, and Africa, Latin America, and Asia-Pacific.
Baker Hughes GE
Founded in 1987 and headquartered at Texas, U.S.; Baker Hughes GE provides integrated oilfield products, services, and digital solutions.
The company operates through four business segments, namely Oilfield Services, Oilfield Equipment, Turbomachinery & Processing Solutions, and Digital Solutions.
The company’s oilfield services provides products and services for on and offshore operations across the lifecycle of a well, ranging from drilling, evaluation, completion, production and intervention.
Also, its oilfield equipment segment provides a broad portfolio of products and services to designs and manufactures onshore and offshore drilling and production systems and equipment for floating production platforms.
With operations in over 120 countries, the company has its geographic presence across North America, Europe, Asia-pacific, Latin America, and Middle East and Africa.
Founded in 1919 and headquartered at Texas, U.S.; Halliburton Company provides a wide range of services and products to oil and natural gas companies.
The company operates through two business segments, namely Completion and Production and Drilling and Evaluation. The company’s completion and production segment offers production enhancement services.
In addition, it’s drilling and evaluation segment provides drilling fluid systems, performance additives, completion fluids, solids control, specialized testing equipment, and waste management services; and drilling systems and services.
With two corporate offices in U.S and United Arab Emirates and 140 nationalities in more than 80 countries, the company has its geographic presence across North America, Europe, Latin America, Asia-Pacific, and Middle East and Africa.
Weatherford International, PLC
Founded in 1941 and headquartered at Houston, U.S.; Weatherford International, PLC provides equipment and services for the drilling, evaluation, completion, production, and intervention of oil and natural gas wells.
The company offers equipment and drilling tools; tubular handling, management, and connection services; equipment rental services; and onshore contract drilling and related services through a fleet of land drilling and work-over rigs.
Also offers directional drilling services, and logging and measurement services while drilling; services related to rotary-steerable systems, high-temperature and high-pressure sensors, drilling reamers, and circulation subs; managed pressure drilling, conventional mud-logging, and drilling instrumentation.
With Operations in over 90 countries, the company has its geographic presence across North America, Europe, Latin America, and Asia-Pacific.
China Oilfield Services Limited (COSL)
Founded in 2005 and headquartered at Dongcheng District, China; China Oilfield Services Limited (COSL) provides integrated offshore oilfield services.
The company operates through four business segments, namely Drilling Services, Well Services, Marine Support Services, and Geophysical and Surveying Services.
The company offers onshore and offshore well services, including logging; drilling and completion fluids; directional drilling; cementing; well completion and work-over; stimulation; and others.
With 30 countries, the company has its geographic presence across North America, Europe, Latin America, and Asia-Pacific.
Basic Energy Services
Founded in 1992 and headquartered at Fort Worth, Texas; Basic Energy Services provides services to oil and natural gas drilling and producing companies. The company operates through six business segments, namely Well Servicing, Water Logistics, Pumping Services, Rental/Fishing Tools, Contract Drilling, and Tubulars.
The company’s water logistic segment offers services to specialized tank trucks, storage tanks, pipelines, water wells, disposal facilities, water treatment and construction, and other related equipment.
Also, company’s water serving segment offers services to rigs and related equipment and the contract drilling segment offers services to drilling rigs and related equipment.
With 114 locations, the company has geographic presence primarily in the North America.
Superior Energy Services, Inc.
Founded in 1991 and headquartered at Houston, U.S.; Superior Energy Services, Inc. is engaged in providing oilfield services and equipment to oil and natural gas exploration and production companies.
The company operates through four business segments, namely Drilling Products and Services, Onshore Completion and Workover Services, Production Services, and Technical Solutions.
The Company`s pressure pumping services offers comprising hydraulic fracturing and high pressure pumping services used to complete and stimulate production in new oil and gas wells; fluid management services used to obtain, move, store, and dispose of fluids that are involved in the exploration, development, and production of oil and gas; and workover services consisting of installations, completions, and sidetracking of wells, as well as support for perforating operations.
The Company has its geographic presence across North America, Europe, Asia-Pacific, Latin America, and Middle East & Africa via network of subsidiaries and partners.
FMC Technologies, Inc.
Founded in 1958 and headquartered at Houston, Texas; FMC Technologies, Inc. provides subsea systems, technologies, and services for the oil and gas industry.
The company operates through three business segments, namely Subsea, Onshore/Offshore, and Surface Technologies.
The company’s subsea segment provides integrated design, engineering, procurement, manufacturing, fabrication and installation, and life of field services for subsea oil and gas fields. Moreover, its surface technologies segment offers wellhead systems for standard and custom-engineered applications.
With three headquarters at London, Houston, and Paris, the company has its geographic presence across North America, Europe, Middle East and Africa, Latin America, and Asia-Pacific.
Founded in 1994 and headquartered at Allerød, Denmark; Welltec develops and provides well technologies and solutions for the oil and gas industry.
The company offers various solution and services such as conveyance solutions, mechanical services, clean-out solutions, milling solutions, completion solutions, RLWI solutions, diagnostics, and fishing services.
The company has its geographical presence across North America, Europe, Middle East and Africa, Asia-Pacific, and Latin America.
Weir Oil and Gas
Founded in 1871 and headquartered at Glasgow, United Kingdom; Weir Oil and Gas engaged in designing, manufacturing, and providing services with highly engineered solution to the customers worldwide.
The company operates through three business segments, namely Mining, Oil and Gas, and Flow Control. Its oil and gas segment offer product and services to drilling, well completion, production, and pipeline transportation sectors.
In addition, the flow control segment offers services to the power generation, industrial, and oil and gas sectors, as well as design and manufactures valves and pumps.
The company has its geographical presence across North America, Europe, Asia-Pacific, Latin America, and Middle East and Africa.
In conclusion, you have seen what oil and gas services are about, who is involved and some examples of companies involved in these activities.
The oilfield services sub-sector of the upstream segment is composed of firms or organizations that support E&P activities in oil and gas. These firms build infrastructure and provide specialized equipment, services and skills needed.
All this goes into exploring, drilling, testing and producing crude oil or natural gas wells.
Oil and gas services sector is a multi-billion dollar global industry. You can be part of it as an investor, employee or entrepreneur. You can play a role in the oil and gas sector at the level which you are able to plug in at.