PESA companies must remain nimble in solving challenges

We have just left a transformational year in the industry, where shifting commodity prices and evolving drilling strategies have demanded agile thinking and ingenuity—especially in the oilfield services and equipment sector. Technological innovation has been on the rise, as PESA members spearhead efforts to increase productivity and efficiency across the supply chain.

While some market analysts remain unsure if the downturn is truly behind us, broad trends provide optimistic prospects for 2019. Moody’s Investors Service sees the weakness in the hydraulic fracturing market as temporary, with gradual recovery taking place in the second half of 2019. This is good news for PESA members.

Indicators and trends. Strong domestic production growth, combined with market volatility abroad, has pushed U.S. oil and gas markets toward net exportation of natural gas, crude oil and petroleum products, an exciting economic prospect for the future. American influence over the industry should continue to grow, with the Energy Information Administration (EIA) predicting that U.S. crude production will exceed that of Russia and Saudi Arabia in 2019.

According to Deloitte, more than half of industry executives expect to increase development and exploration spend, rig deployment and headcount in 2019. These expanded operations will have significant implications for our sector. Retaining talent, especially in high-impact, high-turnover regions like the Permian basin, will be critical. PESA continues to offer multiple opportunities for intra-sector collaboration and development opportunities for our members, to maintain and strengthen the greatest oilfield assets: the men and women who compose our workforce.

Permian basin. Challenges remain in the Permian basin, from infrastructure to labor shortages. Pipeline infrastructure must improve, and it should do so later in the year. An acute truck driver shortage, excessive road traffic and increased labor costs are also known issues. Many of PESA’s member companies are committed to collaboration with operators in the region, as well as local officials.  

Permian activity is also driving market dynamics in sand and water. Rapidly growing demand for sand has fueled the opening of at least five Permian sand mines in 2018, with more expected in 2019. And the need for proper handling and disposal of water in the Permian is creating an opportunity for specialized water companies to enter the market. 

These issues provide openings for our sector to step in and provide needed expertise, and PESA member companies are fully engaged in creating solutions to this challenge.

Regulation. Our sector’s success is also intrinsically linked to decisions made in statehouses, capitols and economic forums worldwide. Policy outlooks for the coming year are mixed, bringing both opportunities and challenges for our sector.

As we saw with the recently defeated ballot measure in Colorado, our industry may face additional challenges in some states with significant operations, such as New Mexico, Colorado and California. With the new Democratic majority in the House, our industry will likely see an increase in congressional investigations into hydraulic fracturing, Clean Air Act enforcement, offshore leasing, crude oil exports and LNG export permitting. 

The new majority also has taken steps to create a new Select Committee on the Climate Crisis.  PESA will continue to ensure that our sector of the industry and their ongoing efforts to protect the environment are fairly represented in all these issues.

On a global scale, international trade policy will remain complex, as the impact of the U.S.-China trade dispute continues to increase. This activity has significant effects on our sector, along with the steel and aluminum tariffs enacted last year. China also has recently imposed a 10% tariff on LNG, indicating a new willingness to target domestic upstream development. U.S. sanctions against Iran will continue to play a part in the Middle East and globally, as the Trump administration granted waivers to eight large Iranian oil buyers in late 2018. If the exemptions are not renewed this year, additional Iranian oil will come off the market, impacting price. OPEC and Russia also will have to consider regarding further production cuts.

Our industry has reason to keep looking up. This coming year provides an opportunity to strategize, grow our businesses, and capture the tremendous opportunities that lie ahead.