It’s that time of the year again when the 2013 Offshore Technology Conference in Houston, Texas beckons oil service companies from around the world.
Originally established in 1969 as a modest gathering of fledgling pioneering companies that were learning how to develop shallow water reserves in the Gulf of Mexico shelf, the event now showcases all kinds of oil service products and services used all over the world, both onshore and offshore along with ancillary products and services.
It’s an economic jamboree for the hotels, restaurants and shops of Houston as thousands flock to the city. The city of Houston was smart when it built the massive indoor Reliant Centre Exhibition Centre a few years ago where companies large and small display their wares. The oil service industry is a $500 billion industry that is growing at a 10% annual clip, but the city’s infrastructure and the Reliant Centre is well equipped to handle it. There are special OTC lanes at the airport, a tram system runs to the exhibition from downtown Houston, lots of on-site parking and shuttles running to and from the car parks.
It’s a far cry from our exhibition centre at the Bridge of Don, and our city’s infrastructure. It’s too late to do anything about the Offshore Europe conference later this year, but we can always hope for a conference in 2015 which isn’t held in a dysfunctional collection of outdated temporary and permanent buildings, and where people who visit the exhibition by car don’t have to endure long traffic jams and five minute walks in the mud and rain to the exhibition itself.
Turning back to OTC, this should be a very upbeat conference week. Domestically the shale revolution is well underway to turning the US from an importer of gas and oil to potentially (current rules do not allow exporting of oil) an exporter. The good news for the service industry is that producing growing quantities of oil or gas from shale takes a huge number of wells (because relative to conventional wells they are typically very low producers) and those wells need a lot more supporting equipment than conventional wells – a double whammy!
The good news domestically also extends to offshore in the Gulf of Mexico where there is a record number of rigs working now. The hordes of oversea visitors will be similarly upbeat as growth in the key offshore regions, including the North Sea, continue to display signs of strong growth, while international land spending is up. In this environment, you can expect a barrage of contract wins and other deal announcements that have been held back for announcement this week.
It is paradoxical that the feel-good factor at this year’s OTC is not reflected in the stock markets at home, where the prices of Brent crude and oil service companies have fallen significantly. Brent fell as much as 20% in March and April, prompting the European public oil service stocks to follow suit. This has prompted a flurry of negative observations in the financial press.
The informed view of the Simmons’ research team is this movement represents a seasonal low, which has been prompted by a combination of refinery shutdowns and structural European demand weakness. In the words of our Research Group, “Q2 should be the seasonal low point for the year from a demand perspective as refineries emerge from maintenance hibernation and seasonally stronger demand surges in key markets such as Saudi”. Consequently, this should be seen as a blip and not a trend.
Looking ahead, our firm’s view is that we should expect range bound oil prices ($95-$115 bbl), which should be more than adequate to ensure a robust industry for the foreseeable future. If that forecast plays out, the demeanour at OTC will continue to be cheery for years to come and Simmons will need to find a bigger venue for our flagship cocktail party that attracts the great and good of the industry. That’s a problem I’m sure we will be more than happy to deal with.
Colin Welsh is CEO of Simmons & Co. International