Departure of U.S. oilfield service firms could help margins return

FILE PHOTO: A drilling rig operates in the Permian Basin oil and natural gas producing area in Lea County

By Liz Hampton

DENVER (Reuters) – Small U.S. oilfield service companies are selling equipment and shutting their doors as business activity shrank last year and contract prices have remained below profitable levels despite oil-price gains.

The companies that provide equipment and services to the shale oil industry were among the hardest hit after the coronavirus pandemic sent oil prices reeling to record lows last year. The departures of loss-making businesses have raised the hopes of larger firms that industry margins will rise.

The exit of those firms could help pricing recover across the industry. Discounted prices offered by less powerful competitors have hurt what larger service companies can charge, said Chris Wright, chief executive of hydraulic fracturing company Liberty Oilfield Services, in an interview.

“You’re always impacted by pricing from competitors,” said Wright, whose firm is the second largest U.S. fracker. “Weaker and lower-tech competitors are struggling to get work. They offer very low prices, and not prices they can sustain for the long-term. We do not match those prices.”

Oklahoma City-based fracking company Legend Oilfield & Energy Services in May said it was ceasing some operations and laid off 118 employees at it Longview, Texas, facility. The company operates oilfield equipment in Texas and North Dakota.

Permian International Auctions this month will auction off all of ABC Rental Tool Company’s equipment in New Mexico in a sale that includes real estate. In Louisiana, S3 Pump Service last week auctioned off its equipment in a complete liquidation of its business, according to a brochure from Superior Energy Auctioneers.

A person who answered the phone at Legend Energy Services declined to answer questions. S3 Pump Services and ABC Rental Tool could not be reached for comment.

“We’re at about the bottom for pricing that we expected,” said Mark Chapman, vice president of oilfield services intelligence at consultancy Enverus. “There are some indications that [an increase] is around the corner.”

Larger service firms have been disciplined about not putting equipment to work without reasonable returns, Chapman said, while smaller companies “have been more desperate.”

(Reporting by Liz Hampton in Denver; Editing by Aurora Ellis)