EMEA OFS Companies Will Continue to Report Strong Performance

EMEA (Europe, Middle East, and Africa) oilfield service (OFS) companies will continue to report strong performance driven by adequate industry fundamentals, a Moody’s Ratings report sent to Rigzone recently by the Moody’s team stated.

“We expect earnings growth of more than 10 percent in 2024 for oilfield services companies we rate as the industry benefits from rising upstream capital spending,” the report said.

“Investments from national oil companies (NOCs) will underpin growth in global upstream oil and gas capital expenditure of seven percent in 2024. This follows a nine percent increase in 2023,” it added.

“We expect demand for OFS provided by European and Middle Eastern entities, such as Shelf Drilling, Ltd (B3 stable), Borr Drilling Limited (B3 positive) and Odfjell Drilling Ltd. (B2 stable), to remain robust during the next 18 months,” it continued.

In the report, Moody’s Ratings said the oil and gas industry has experienced a supply and demand imbalance that has built up since 2017 and supported the rebound in upstream investments since the pandemic.

“Elevated oil prices, initially fueled by the post-pandemic global recovery and subsequently exacerbated by the supply disruptions triggered by Russia’s invasion of Ukraine, continue to provide incentives to develop and exploit reserves,” the report noted, highlighting that prices reached $120 per barrel in April 2022, but have stabilized at around $80 per barrel for the last two years.

“We expect crude oil to exceed our medium-term oil price range of $55-$75 per barrel during the next 12 months as oil producing countries keep global supply under control,” the report added.

The Moody’s Ratings report also warned, however, that the risks of industry underinvestment or an oil price drop remain closely tied to the global macroeconomic performance.

“A prolonged oil price drop would trigger a reduction in upstream projects, resulting in lower OFS contracting activity,” it highlighted.

In its latest short term energy outlook, which was released in October, the U.S. Energy Information Administration (EIA) projected that the Brent crude spot price will average $80.89 per barrel in 2024 and $77.59 per barrel in 2025. The Brent spot price came in at $82.41 per barrel in 2023, that STEO highlighted.

The Moody’s Ratings report was sent to Rigzone prior to the U.S. election. When Rigzone asked Moody’s if the findings of the report are affected by the election, the Moody’s Ratings report author told Rigzone, “the performance of the OFS industry is tightly linked to the oil price and the oil price is driven by supply and demand dynamics as well as OPEC and OPEC+ production decisions”.

“As a result, we expect that the U.S. elections should not have a major direct impact in the industry in the next 12-18 months,” the Moody’s Ratings report author added.

The U.S. election took place on November 5. Donald Trump won this election with 312 electoral votes to Kamala Harris’ 226, RealClearPolitics and 270towin, which both describe themselves as non-partisan, show. The total number of electoral votes is 538, with a minimum of 270 needed for a majority, the National Archives and Records Administration (NARA) website outlines.

In a separate report sent to Rigzone by the Moody’s team last month, Moody’s Ratings stated that cybersecurity is a high priority for the oil and gas industry.

“Cyber commitments among oil and gas companies we rate exceed the cross-sector corporate average in our 2023 survey,” that report stated.

Moody’s Ratings publishes credit ratings and provides assessment services on a wide range of debt obligations, programs, and facilities, and the entities that issue such obligations in markets worldwide, including various corporate, financial institution and governmental obligations, and structured finance securities, Moody’s website states.

To contact the author, email andreas.exarheas@rigzone.com