Many of our customers are reporting an increase in business over the past few months. Some are actually getting “busy” again, and some are getting work for the first time in years. But almost all of our customers are seeing some increase in demand for their products and services. How much seems to depend on the customer, and who their customers are, and wether or not they are servicing domestic or international clients (or obviously a mix). We have also seen some signs of life and while we remain dramatically down for normal, we are noticing a slow trend upwards in terms of our sales volume. I would caution that given all of the layoffs and reduction in capacity, its easier to feel busy now than it was before the downturn.
Nevertheless, as we previously reported, the CEOs of major oilfield services companies all indicated that the market had reached bottom, and that they would seek to regain pricing concessions given during the downturn. The good news is we are starting to see some preliminary evidence that this may, in fact, be the case – breathing life back into the services sector.
Since May, shale drillers have added 158 rigs. Simultaneously, these drillers have been cramming more and more sand into individual wells, trying to extend their productivity. This has resulted in a boost to sand prices by roughly 25%. Analysts believe that sand often leads the way on the recovery – when sand begins to recover, so does everything else.
And the recovery seems to be happening a bit more quickly than anticipated. Spending by drillers in the lower 48 is now forecast to be $1 billion higher than analysts expected in the three final months of 2016. Leases for more-efficient rigs that have more capability are up by about $5,000.00 per day (a third more expensive than in May).
Various analysts expect service companies to boost prices by almost 10 percent per year through 2021, as we are still currently about 30% below full-cycle pricing and about 10% below cash costs for some service companies.
And all of this occurred before OPEC reached an agreement. We might be back to the Wild West sooner than we thought – hang on for the ride.
By: Ty Chapman
Five Star Metals, Inc.
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