Oil & Gas Market Trends
COVID-19 Industry Brief
EFFECTS OF THE CORONAVIRUS ON THE Oil & Gas INDUSTRY Update June 18, 2020
DOWNHOLE TOOLS AND E&P EQUIPMENT AND INVENTORY
DOWNHOLE TOOLS AND E&P EQUIPMENT AND INVENTORY
MIDSTREAM AND UPSTREAM
MIDSTREAM AND UPSTREAM
Date April 2021
- Crude oil prices, as reported in Cushing, Oklahoma, went negative on April 20, 2020, as oil markets collapsed. However, as of April 19, 2021 prices had recovered significantly, increasing over 600% over the same time last year to $63.33 per barrel.
- The North American rig count remained down slightly as of April 23, 2021 over the same date in 2020; however, current counts represent a significant improvement over historic lows seen last year
- Starting in mid-March 2020, the majority of live equipment auctions across the U.S, Canada, and the UK were either cancelled, postponed, or completed 100% online due to pandemic concerns. However, with the increasing roll out of vaccines and easing of restrictions, some auctioneers are returning to auctions with onsite participation.
- Values remain somewhat depressed for equipment directly related to oil and gas exploration.
Gordon Brothers by the numbers
Industry Rebounding After Crash: On April 19, 2021, the West
Texas Intermediate (WTI) per-barrel price of oil hit a rate that was over
600% higher than the same date in 2020. For the period from April 1
through April 19, 2021, the average price per barrel was approximately
$61, representing pricing not seen since the end of 2019. While still
lower than the low- to mid-$70s pricing of 2018, current prices have
recovered significantly over the historic lows seen in 2020.
It has taken a full year to recover from the failed attempts in March
2020 to cut back oil production by Saudi Arabia and Russia. The
cutback was intended to offset the decreased demand resulting from
the coronavirus outbreak. However, the talks ended in failure and
resulted in a price war primarily involving Saudi Arabia and Russia.
The price war was settled on April 12, 2020, but the market did not
react well to the settlement, the last phase of which remains in place.
The settlement secured a production cut of 9.7 million barrels per
day from May 1 to June 30, 2020, 7.7 million barrels per day from
July 1 to December 31, 2020, and 5.8 million barrels per day from
January 1, 2021, to April 30, 2022. As a result of the March 4, 2021
OPEC+ meeting, production cuts were maintained due to a downward
adjustment of the group’s demand forecast by OPEC+ technical
At the same time the impact of the COVID-19 pandemic worldwide
pushed oil consumption forecasts down by 20% to 30% for 2020.
Consequently, crude oil prices declined precipitously, with prices
falling to below $20 per barrel for WTI crude in late March and briefly
reaching negative levels on April 20, 2020, as the market attempted to
find a supply and demand balance and storage locations domestically
and globally reached capacity. As a result, U.S. crude oil output fell
6.4% to 11.47 million barrels per day in 2020, down from a record of
12.25 million barrels per day set in 2019.
Another factor weighing on recovery of the industry is the continuing
pandemic. Though the rollout of vaccines is increasing, the global
slowing and transition of business activities lingers. Employees and
consumers continue to work remotely in many parts of the world.
Business and recreational travel has been slow to recover, only partially
mitigating considerably reduced consumption levels of gasoline, diesel
fuel and aviation fuel seen over the last year. As economies recover,
business travel, daily commuting and vacation travel will return to
more normal levels, increasing fuel consumption levels. As these levels
stabilize, Gordon Brothers expects that secondary market demand
for downhole tools and exploration and production equipment and
inventory could experience a recovery in values toward pre-pandemic
Active rig count Remains Depressed: The North American market
saw a steady decrease in rig activity throughout 2019 and 2020 due
in part to the decline and volatility in the price of crude oil, funding problems for smaller operators and demand reductions produced by
the COVID-19 pandemic. Based on reporting by Baker Hughes, as of
April 23, 2021, there were just two fewer rigs drilling for oil and gas
in North America as of the same date in 2020, which was the week
oil prices went briefly negative in the wake of the Saudi/Russia price
war. Nevertheless, although down slightly from last year, that number
represents a significant recovery from the low of 289 reached on June
Despite changes in the oil and gas industry, particularly since the
shale oil and natural gas industries have ramped up production in
recent years, active rig counts can still signal the willingness of oil and
gas companies to continue investing. Per oilfield truck and tractor
manufacturer Tiger General, rig counts can also anticipate a demand
for products used in the oil service industry, such as drilling, producing
and processing hydrocarbons.
current appraisal consideration: At its 13th OPEC and non-OPEC
Ministerial Meeting (ONOMM) on January 5, 2021, OPEC members
and producers agreed to keep the groups’ collective output flat. The
meeting recalled the decision taken by all participating countries at
the 10th ONOMM held on April 12, 2020, to “adjust downward overall
crude oil production.” Separately, Saudi Arabia announced it would
unilaterally cut production by one million barrels in 2021. The markets
reacted favorably to this news with West Texas Intermediate futures,
the U.S. pricing benchmark, rising above the $50-per-barrel mark for
the first time since February 2020.
However, within North America exploration will likely remain limited.
Many U.S. shale operators reacted quickly at the beginning of the
pandemic by announcing cuts to capital expenditure, or capex,
spending, which is money spent on fixed assets. Capex spending for
2021 is expected to remain flat or increase only slightly. In many North
American regions, given the risk of completing a successful well along
with the cost to drill, the completion and operation of a well currently
does not have the future economic benefits necessary for investors to
take on the projects, and lenders are hesitant to finance oil and gas
equipment directly related to exploration. Without sustained, relatively
stable oil pricing at the current levels, the availability of capital to take
on projects is expected to remain limited.
It is important to understand the depressed nature of the oil and gas
market. Though the price of oil appears to have somewhat stabilized
in the $60-per-barrel range, the tentative stability and fluctuations in
the price of oil have created an economic environment in which the
exploration for oil and gas will continue to be somewhat diminished.
valuation outlook: In terms of downhole tools and equipment,
Gordon Brothers expects that secondary market demand for anything
other than ongoing well-servicing equipment, such as lift equipment or
other niche sectors, will be somewhat depressed pending stabilization
of crude prices at current levels or higher for a sustained time period.
Concerning appraisal values for oil country tubular goods from an
inventory perspective, Gordon Brothers expects a material drop in
Tier I volumes. Tier II is expected to be limited to low volumes due to
market conditions and a weak structural market. Scrap is expected to
be negatively impacted based on market weakness. Equipment values
in this space will be similarly impacted.
Note: THIS PUBLICATION IS PROVIDED FOR INFORMATIONAL MARKETING PURPOSES ONLY. THE MATERIAL
CONTAINED HEREIN SHOULD NOT BE REGARDED AS ADVICE, NOR RELIED UPON TO MAKE FINANCIAL,
OPERATIONAL OR OTHER DECISIONS; NOR SHOULD IT BE USED AS A SUBSTITUTE FOR AN ASSET APPRAISAL.
ACTUAL RECOVERY VALUES MAY VARY FROM TRANSACTION TO TRANSACTION AND THE RECOVERY
VALUES REFERENCED HEREIN ARE FOR REPRESENTATIVE TRANSACTIONS WITHOUT REGARD TO SPECIFIC
KEY FACTORS. THIS MATERIAL MAY BE REDISTRIBUTED ONLY IN ITS ENTIRETY, INCLUDING NOTICE OF
COPYRIGHT. ALL RIGHTS RESERVED. ©2021 GORDON BROTHERS, LLC.
Reference sources: BAKER
HUGHES, ENERGY INFORMATION ADMINISTRATION, ORGANIZATION OF THE PETROLEUM EXPORTING
COUNTRIES, POYNTER INSTITUTE, THE ASSOCIATED PRESS, FEDERAL RESERVE ECONOMIC DATA