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The general foundation of the oilfield services sector is solid, with emerging opportunities on the horizon. Of course, the size of those opportunities is based entirely on how much Exploration and Production (E&P) money businesses have to spend, which is in turn directly related to the value of the oil and gas they produce. According to ARC Financial, in 1998 the value of all the oil and gas produced in Canada was $26.5 billion. By 2008 that figure soared to $145.4 billion, representing great growth for the oilfield services sector. This year ARC is estimating the figure will be $132.8 billion, 5 times what it was 15 years ago.
But we face changing times.
While oil development remains steady, the natural gas industry that powered the oilfield services sector for decades has collapsed. Since 2008, the type of wells drilled and the completions required are totally different. Demand for equipment and services that paid the rent for 20 years has declined sharply, while the industry need for bigger rigs and specialized horizontal completion techniques is growing fast. Today, change in the external environment is the only certainty, which makes financial planning a challenge.
Controlling Internal Factors to Create Solid Ground
As oilfield service companies develop budgets and business plans for 2014 and beyond, the big picture – the total size of the pie – is looking relatively good. Oil production is growing, so supporting client production operations and maintenance is also growing. Crude oil prices fluctuate but remain stable in a range of $80 to $100 a barrel. Gas prices and gas production are down, but this is not a new story.
At the same time, oilfield service companies are subject to many external factors, from commodity prices and oil company spending plans to government policy changes and the weather. All are beyond our control. So when planning for the future, we must take the knowledge we have, factor in forecasts and predictions from experts and do our best to create a business plan. Looking internally for gains in efficiency through improved financial management and controls is the best way to enhance the performance of your operations. This provides a firmer foundation that will allow you to better respond to external changes.
All oilfield service business owners and managers should ask themselves the following: Have you changed the way you run your business as a result of a changing market conditions? Are you getting your field tickets right the first time to speed up collections and reduce accounts receivables? Do you really know your fixed and variable costs for every service job or every piece of equipment you sell or service? As you invest to exploit new opportunities or replace mature equipment, is your cost of capital as low as it could be?
How MNP Can Help
MNP’s Oilfield Services team has the financial management tools to help increase profits regardless of market conditions. Finding cost efficiencies in your own organization is essential and good financial management is always a sound investment. With so many key business drivers outside of your control, you must manage the factors entirely within your control; helping to ensure you’re on solid ground no matter what happens.
In November and December, MNP will be holding client seminars in all major oilfield service communities in western Canada, from Weyburn to Ft. St. John and Medicine Hat to Peace River. We will present an overview of the macro drivers for oilfield services; consensus activity forecasts for 2014 from PSAC, CAPP and CAODC; the changing nature of the types of products and services E&P companies require; and the types of financial tools your company can employ to capture the highest possible profit margin from every revenue dollar.
These complimentary seminars will be informative, engaging and valuable. Please look for your invitation in the coming weeks. It will contain further details about the seminar and RSVP information.
Related Topics:Business Performance
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