Put at its most simplistic, for every rig by which the rig count in the U.S. declines, that’s one fewer rig generating revenues for its owner. Almost every rig in the U.S. is owned by an oil services company. The U.S. combined oil and gas rig count is down nearly 70% from its 2014 peak. Thus, it is, perhaps, no wonder that these companies are currently having such a hard time.
This huge overcapacity of equipment will not dissipate soon. Unlike oil, gas and other mineral reserves dug up out of the ground, this equipment is not a depleting asset that is produced, consumed and then disappears. The assets of oil services companies are built for longevity. For example, oil rigs, whether offshore or onshore, are built to last. Sometimes they can have a useful life of 20 to 40 years.
Thus, while a moderate improvement in oil and gas prices may have a positive impact on exploration and production (E&P) companies, the overcapacity in rigs and other oil field equipment could overhang the oil services industry for quite some time.
U.S. Oil and Gas Rig Count
Source: Baker Hughes
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