Times of Malta – 28th March – Maritime and Logistics Supplement
How is the oil services industry weathering the current downturn?
This has been one of the most brutal downturns in my memory. Indeed, global investment into new upstream projects has plummeted by nearly 50 per cent since 2014 due to belt-tightening amid the oil price slump. Estimates put the number of job losses globally at 440,000 across the industry over the past three years. This is a massive reduction in the numbers employed and has had a significant effect on the structure of the oil services sector across the globe.
Many companies were unable to weather this downturn. Closures and bankruptcies have become an all-to-frequent feature of the industry. Consolidation of resources through mergers is also happening as companies fight to survive and share out a significantly reduced pool of work.
The recent extension to the agreement between OPEC, Russia and other non-OPEC producers to extend oil production restraints through to the end of 2018 has allowed oil prices to stabilise in the range US$65 to US$75 per barrel. With the newfound stability, the oil companies can plan to bring back developments and exploration projects that had been shelved. Having reset their costs through the downcycle, the oil majors are already turning the page on a string of dismal earnings. Cash flows have recovered sufficiently for many to cover their revised capital spending plans and dividends to fit their cash cycles.
One of the principal sources of logistics activity for Medserv is the drilling of wells offshore. There are encouraging signs that the many rigs that are currently stacked awaiting work is reducing. This is for two main reasons – the slow upturn in drilling activity and the aggressive removal and scrapping of older rigs from the fleet. The downturn has forced many rig-owners to review their fleets. Companies have many new rigs stacked to choose from. There is very little realistic chance for older rigs to find work in the short to medium term.
How is Medserv weathering the downturn?
Medserv has not been insulated from these issues within the industry. Our clients have sought savage price reductions and our margins have been trimmed to deliver this without compromising the safe delivery and quality of our services. Drilling has been postponed in Cyprus and Portugal. Renegotiation of oil supply contracts in Iraq has prevented the planned development of the south oil fields by the international oil companies. This has a knock-on effect on the quantities of pipe to be shipped, inspected and repaired by Medserv.
The geographic diversification and the acquisition of the METS business has proved to be an excellent move by Medserv. This has moved the company from the reliance on one base, Malta, and new blue chip clients, leading to a better-balanced portfolio of bases, services and clients.
We continued to invest in our management and talented people. We have developed our management systems to internationally recognised standards, and have designed new service packages for both our logistics business and our OCTG business. The benefits can be seen in the rapid deployment of a new base in Limassol, Cyprus, using our base in a box concept in 2017. For our OCTG business we have set up a new base and storage facility in Duqm, Oman and now offer rig-ready pipe to Shell/PDO on behalf of Sumitomo. This takes Medserv into land-based logistics in a big way.
What kind of diversification have you embarked upon?
Medserv has a strategy of looking for work in areas of proven oil and gas reserves, and where the cost of extraction is relatively low. In this lower for longer price regime, there is very little appetite for wildcat exploration activity in new parts of the world. Medserv has concentrated their activities on the Med basin and the Middle East.
Our recent win of a major OCTG storage and logistics contract in Oman, Egypt and the return of ENI to Cyprus support the success of this strategy. The Egypt contract has the potential to develop into a major logistics opportunity encompassing both onshore and offshore activities. Indeed, our investment in base facilities, brand-new equipment and people in Egypt demonstrates that Medserv has the vision, confidence and financial muscle despite the prevailing political climate. Further opportunities are under active pursuit in Abu Dhabi, East and West Africa.
The general consolidation of oil services within the industry has also yielded the possibility for Medserv to offer an increased range of services as part of the one-stop service model. From Malta we can offer fabric maintenance services, including shot blasting and painting, corrosion protection, and an increasing range of general engineering services to compliment our existing portfolio of services.
How do political scenarios affect your efforts?
The renegotiated oil contracts in southern Iraq will alleviate the stagnation in the area and herald a return to higher levels of activity for our OCTG business there.
What is your outlook for the future?
Medserv is in good shape to emerge from this downturn with increased sales and a broader range of services and clients across the Mediterranean, Middle East and beyond. Our pipeline of opportunities remains strong and diversified. It has a good mix of traditional opportunities for logistics services in new geographies, and for the possibilities of cross-selling logistics and OCTG services in our home markets and in new markets.
Oilfield service firms and workers have experienced a hard time during the industry downturn, that’s for sure. Medserv has embraced the recovery of the oil services industry and through the lessons learnt, Medserv has developed a sustainable operating structure for this new reality.
Through our continued commitment to investment in our people and operations, the coming years will see substantial revenue growth for Medserv as the industry recovers and Medserv delivers the already-contracted services for drilling projects and workover programs. We are already seeing growth in OCTG pipe handling volumes managed across the Middle East. Our strategy of securing new geographic markets is bearing fruit by supporting a growing number of offshore and onshore projects in the eastern Mediterranean, Middle East and Africa. With the increased confidence in the industry, we are experiencing increasing numbers of tendering opportunities for our core competencies, two of which are expected to be adjudicated in the coming months.