Oilfield services, shipbuilders and other industries that rose with the
pre-2014 oil price boom have had it hard. Since barrel rates fell, their
previous patrons have become uninterested in doling out major purchase
orders, leaving oil and gas equipment manufacturers without revenues.
A recent report
by Arkansas Online says the energy industry's support sector could feel the
effects of low oil prices for up to two years after the current bear market
recovers.
"When oil gets good again we will be the last to get back to
work" because half the fleet available is not currently in use, Vance
Breaux Jr., a boat manufacturer from Louisiana, said.
Louisiana's rig count has shrunk to 35 active sites as of last week – down
40 from the same time last year, according to Baker Hughes latest report
on the matter.
Currently, Breaux and his industry compatriots lack diversification in
their client profile. Production sites with easy-to-reach oil and gas
deposits are running out in Louisiana, but the weak investment climate
prevents energy firms from starting new projects, making it difficult for
equipment manufacturers to generate revenues.
In other parts of the country, bargain hunters are snagging expensive oil
and gas equipment at auctions for a fraction of their original cost.
"Everyone says we're crazy, but we're hoping to capitalize on the
downstroke," Shawn Kluver, a buyer in the market for a hydro excavator
truck, told USA Today last year.
Kluver flew to Colorado from North Dakota to compete with more than 3,000
bidders for a rock-bottom price on backhoes, bulldozers, trucks and other
heavy equipment.
As hundreds of oil and gas rigs shut down across the United States,
falling bottom lines force oil and gas majors to abandon future exploration
projects and reduce the scope of ongoing ventures, causing thousands of
drilling workers to lose their jobs and the equipment they once used to sit
idle.
If a company begins liquidating its assets, some of the idle equipment may
find itself in the hands of industry resellers, such as the Vancouver-based Ritchie Bros, which claims to be
the world's largest auctioneer of heavy equipment.
The company says it has seen a peak interest in its events this year,
driven in large part by contractors looking to repurpose drilling equipment
for construction projects.
Oil and gas firms have been hemorrhaging workers and physical assets
essential to drilling operations, which means bringing oil and gas companies
back into peak production will not happen overnight when prices do recover.
In June, The Wall Street Journal, used data
from HIS Energy to estimate that roughly 70 percent of the fracking equipment
across the shale industry had been idled due to financial constraints. Also,
about 60 percent of U.S. field workers needed to frack shale wells have been
handed pink slips since the pricing crisis began two years ago. Many of those
workers have moved on to jobs in other industries over the past two years,
clearing the job market of experienced hires.
"It's scary to think what a drag and what a headwind finding
experienced labor is going to be this time around," Roe Patterson, CEO
of Basic Energy Services, a Texas-based well completion company, told the
WSJ.
Patterson also emphasized that the state of equipment deteriorates due to
wear and tear over time, even when its not in use.
"Pop the hood on your car and let it sit for a year," he
suggested. "I guarantee the car won't be in the same condition."
As Hordes of heavy drilling equipment exit the energy industry to be
repurposed, the woes of oil and gas equipment manufacturers will continue as
the industry finds its footing in a recovered market. Once profits from
existing drilling projects begin to show in oil and gas companies' books, new
sites will be brought into production, spurring further equipment purchases.
Though the energy equipment industry may see a delayed boom as idled
equipment stored in warehouses slowly returns to duty, firms will have to
turn to their old sources to replace their now-sold assets. Better late than
never.