Is Price Creep Coming for Oilfield Services?

Are we seeing the first little clawbacks of price creep back in drilling and completing new wells? We don’t have a lot of evidence yet, but a few signs of increasing prices for oilfield services (OFS) are appearing on the horizon. For example, Devon Energy said that per unit expenses are up by ~5% in the quarter as a result of severe winter weather in Texas. We know the February freeze generated some supply scarcity after temporary shutdowns across the state of sand mining, chemical blending and even chemical feedstock from the refineries. This capacity was not down for long, days to a week in most cases, but this lack of production caused a drawdown on supplies of consumables. The temporary shortages will work themselves out, but let’s consider recent tough times for OFS companies. Last year they had to turn inventory into cash to survive a sharp drop in drilling and completion activity after oil prices crashed; now they are expected to turn cash back into inventory when service prices are at all-time lows but those for raw materials (steel, diesel and chemical feedstock) costs are increasing. It is difficult for OFS firms to sink even more cash into… continue reading

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