FTSE 350: Oil and gas services no shore thing

While pointing back to the oil price falling in 2015, the self-appointed monitor of companies failing said oil and gas prices “remained challenging” for producers. Services companies are also struggling. Hunting (HTG) said at the end of 2019 it needed a strong end to the year to reach a cash profit within market expectations, at the same time as the “exhaustion” of capital budgets within its client base.

Not everyone is struggling in the Permian and Appalachian shale business – BP (BP.) has fully committed by selling up its share of the decades-old Prudhoe Bay field and the Trans-Alaska pipeline, and consolidator Diversified Gas & Oil (DGO) is not trading far off its price of a year ago – but this does not signal a recovery in store for services companies. Hunting said as much in December. “At this time early announcements from Hunting's publicly quoted clients indicate that capital spend in the year ahead will be lower than 2019, as the oil and gas industry endeavours to improve returns and increase cash generation for investors,” the company said. 

Offshore – US and elsewhere – it’s a different story. Consultancy Rystad Energy is forecasting a rush for services. “Deepwater fields have been among the most sought-after supply sources in recent years, next to the shale bonanza, and the increase in massive contract awards to players in the deepwater industry now could put constraints on further field sanctioning activity,” said the company's oilfield services head Audun Martinsen. 

Mr Martinsen highlighted another opening for deepwater services providers: offshore wind farms. He said this could exacerbate the capacity shortage. Rystad said in a report this month there would likely be a “massive increase” in demand for offshore power cables for wind, from 1,800km in 2019 to 4,300km, overtaking oil and gas. More broadly, Rystad forecasts offshore wind capacity to grow from the current 25 gigawatts (GW) to 50GW in 2022. 

Petrofac (PFC) and Wood Group (WG.) are active in renewables as well as offshore projects. Fossil fuel projects still provide the vast majority of both companies’ income, but additional revenue streams are always welcome. Petrofac has just signed on to build onshore and offshore substations for a UK North Sea wind farm, and last year delivered a massive offshore converter platform for a German North Sea project. These contracts aren’t enough to rescue its revenue from the hit of being frozen out of Saudi Arabia and Iraqi tenders last year, but the company is now established as a renewables player. Wood Group’s most concentrated renewables work is in its Americas division, and in a trading update this month the group said it had a robust US solar pipeline.