Rebounding oil sector years from peak

Modest prices, service firms’ deep discounts during recent crude bust keep recovery slow

The global oil sector is bouncing back, but the high profits seen as recently as 2014 in the days of $100-per-barrel oil are not likely to until the middle of the next decade, the Norwegian research firm Rystad Energy estimated in a report issued Tuesday.

Even though many companies have returned to profitability, the industry is still off of its latest peak, a result of modest oil prices, slower rebounds internationally and offshore, and deep discounts offered by services companies during the recent bust that remain difficult to undo.

As such, the energy services market is only now recovering from its deepest slump since the 1980s, the report said.

“On the bright side, in only three years’ time, activity levels will be higher than they were in 2014, although the cost cuts achieved in the sector means spending levels will only be 80 percent of what was seen in that peak year,” said Audun Martinsen, Rystad’s head of oilfield service research.

That combination means the industry won’t be back to its 2014 highs until 2025, Rystad projects, assuming oil prices remain relatively healthy.

U.S. oil prices hovered above $100 per barrel through mid-2014, only to come crashing down amid a global supply glut, especially as Saudi Arabia and other OPEC nations kept churning out crude in what proved to be a futile effort to suppress the surging U.S. onshore shale sector.

The U.S. oil benchmark bot-

tomed out during the bust at about $26 per barrel in early 2016, but has since rebounded and is now hovering at about $59 per barrel, which is considered healthy for the industry.

Hundreds of companies filed for bankruptcy amid the downturn, and many survivors have struggled to return to profitability.

Now, even though corporate profits aren’t as healthy as they were in 2014, U.S. production is booming to record highs of about 12 million barrels daily.

Almost nothing explains the oil production boom as much as the sector focused on hydraulic fracturing, called fracking.

The U.S. fracking leader, Houston-based Halliburton, returned to profitability in 2018 with a healthy $1.6 billion net gain for the year. But that still pales in comparison to Halliburton’s net income

of $3.5 billion in 2014.

Rystad estimated the U.S. onshore sector would again peak by 2023, while the slower-recovering offshore industry of drillers, seismic firms and others won’t fully bounce back until 2027.

Leading offshore driller Transocean, for instance, still reported a $2 billion loss last year.

“The offshore market bottomed out in 2018, and it will take some time to turn around fully, as capital investments are ramping up slowly and some cost efficiencies have yet to be realized,” Martinsen said.