This week, a tornado outbreak pounded the US southern plains. One of the twisters flattened a Halliburton district office in the Texas panhandle. Practically speaking, the downcycle had already beaten the storm to it. The facility was closed down in a cost cutting initiative earlier this year, so no employees or chemicals were on location. In its destruction, the storm simply finished what the downturn started.
Shuttered facilities like the abandoned Halliburton Pampa office now dot the O&G landscape, particularly in North America, where drilling activity is down 60% y/y and roughly half the frac fleet is sitting idle. Field office closure stories rarely reach beyond local newspapers, but they are happening en masse as the industry compresses.
Just this week, Cameron said it will shutter a large Houston yard in January. Schlumberger is implementing a facility cluster model that reduces its number of locations. NOV took a $57mm charge last quarter partly due to facility closures. Weatherford, Superior Energy Services, and C&J Energy Services, among others, have also recently discussed plans for yard elimination. Even offshore drillers are reducing onshore footprint: Transocean is consolidating its global onshore support functions in Houston.
Yard reduction can yield big savings. Halliburton spent $1bn on operating leases in 2014, operating 313 facilities across the globe (including 117 in the US). National Oilwell Varco owned or leased approximately 900 facilities worldwide last year. Industry roofline has ballooned over the past 5-10 years as capacity played catch up with $100 oil. For example, NOV has added 175 R&M facilities to their operations since 2009.
Eliminating facilities is an aggressive move that usually comes well into downcycles – lease terms may delay immediate action and closures create ramp-up friction in recoveries. With the industry settling in for a protracted slow period, roofline is now shrinking and the physical resizing will become even more noticeable next year.
This isn’t Shamrock, Oklahoma just yet, but from Calgary to Bismarck to Midland, boarded up yards are becoming a more common sight around the North American oilpatch.
This editorial is part of this week’s Oilpro Weekly Review, which also recaps the best discussions on Oilpro. The Oilpro Weekly Review is delivered to Oilpro inboxes each Thursday morning. To receive these comments by email each week, sign up for Oilpro, or if you are already a member, click here to adjust your email settings.