Worldwide, the oilfield services industry generates about $160 billion in revenue, according to GBI Research. Drilling and field service locations are determined by oil and gas production and reserves.
Production demand is driven by oil and gas prices. The profitability of individual companies depends on technical expertise and efficiency of operations. Large companies can offer a broad range of services and typically earn more than 60 percent of their revenue outside the U.S. Small firms can compete effectively by specializing in a particular type of service or geographic area. Overall, the industry is highly competitive in both the domestic and international markets.
Demand is driven by oil and gas prices. The profitability of individual companies depends on technical expertise and efficiency of operations. Large companies can offer a broad range of services. Small firms can compete effectively by specializing in a particular type of service or geographic area.
The industry is highly competitive in both the domestic and international markets. Larger companies typically earn more than 60 percent of revenue outside the US.
Products, Operations & Technology
Oil and gas field service companies provide drilling (about 30 percent of sales) and support services (about 70 percent) for oil and gas wells. Major support services include preparing wells for production, maintaining and enhancing the output of producing wells, and exploration. Some larger companies also manufacture oil and gas field equipment.
Drilling a well with a drilling rig involves creating a hole using a drill bit attached to a rotating drill "string" made up of 30-foot sections of pipe. Heavy fluids ("drilling mud") are pumped down the hole during drilling to carry cuttings to the surface. Periodically, the drill pipe is pulled out and a larger diameter pipe, known as "casing," is cemented in place to protect the hole against collapse.
After drilling is finished, a well is prepared for production in a process known as "well completion." The casing is perforated at the production depth and a smaller diameter pipe (“tubing”) is inserted to allow oil and gas to flow up the well. Finally, a “Christmas tree” structure of multiple valves is attached to the top of the tubing to control the flow of oil and gas from the well.
Offshore drilling requires specialized equipment such as drillships, semi-submersible rigs, "jack-up" rigs, equipment barges, and helicopter services. Directional drilling uses special "downhole" motors or directional sleeves to drill wells at an angle. "Workover" typically involves pumping steam and chemicals into a well to remove obstacles and enhance flow. "Well servicing" involves repairing or replacing down-hole equipment and plugging wells at the end of their productive life.
Specialized manufactured products include drill bits, drilling pipe, derricks, portable rigs, well monitoring instruments, valves, tubing, and drilling fluids. Rotary drilling rigs consist of a derrick, motors, pumps, winches, and other equipment. Workover rigs are typically smaller, truck-mounted units.
Computer technology and sophisticated sensors (including downhole "wireline" instruments) are used to explore, monitor drilling progress, assess the condition of existing wells, and monitor and control product flow from producing wells.
Sales & Marketing
Customers are major oil and gas companies and smaller independent oil and gas producers. Sales are through direct contacts or competitive bidding.
Contracts for drilling typically specify prices in terms of a "dayrate." Multi-well drilling contracts generally have fixed dayrates, while the dayrates in "well-to-well" contracts change according to market demand. During periods of high demand, dayrates for offshore drilling can exceed $400,000 for floating rigs and $100,000 for jackup rigs. Dayrates for land drilling services are lower, averaging about $20,000 for the last few years. Some drilling contracts are priced according to "footage" instead of dayrate, or a combination.
Customer service is key in winning business, and companies must maintain equipment service and storage centers near production areas. Mobile units typically service wells within 100 miles of their base location.
Finance & Regulation
Cash flow for drilling companies can be highly uneven, because demand and dayrates are closely tied to the price of oil and gas, which can be volatile. Severe weather during certain times of the year can also limit contract opportunities and cause uneven cash flow. Receivables average 90 days sales and are often highly concentrated in a few large customers. Supply inventories are small, but most companies have very large investments in equipment, especially if they specialize in drilling.
Well drilling and servicing operations are subject to numerous environmental and safety regulations because hazardous liquids such as crude oil, drilling muds, and well saltwater must be handled and disposed of. Drilling can be dangerous. Major federal environmental laws include the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or the “Superfund” law); the Clean Air and Clean Water Acts; the Oil Pollution Act of 1990; the Safe Drinking Water Act; and the EPA’s Underground Injection Control program.
In North America, hurricanes in the Gulf of Mexico can disrupt operations and the spring thaw in Canada can limit activity. Industry operations are concentrated in major oil and gas production areas, with about half in Texas, Oklahoma, and Louisiana. North Dakota has seen strong growth in recent years.
Updated: November 1, 2013
Industry Intelligence from First Research, a division of Hoover's (a D&B company)