For those of us who grew up in the duck and cover days of the early ‘Sixties, an iconic image is Nikita Khrushchev protesting at the United Nations General Assembly on 12 October 1960.  The head of the Filipino delegation was giving a speech critical of the Soviet Union when Khrushchev demanded the speaker be dismissed.  The Assembly president allowed the Filipino to continue speaking, so a frustrated Khrushchev began to pound his fists on his desk in protest before ultimately picking up his shoe and banging the desk with it.  The image of a frustrated Khrushchev pounding on the table demanding attention is burned into the memories of people of a certain age.  That is analogous to how we’ve felt in the last half of 2017 when speaking with the large institutional investors of Wall Street and Europe.  Throughout 2017 investors in public securities were critical of the upstream oilfield equipment and service sector, declaring the industry on life support because the world was awash in West Texas oil tapped from plenteous, easy to access rocks.  Just because it’s easier, doesn’t mean it wasn’t strategic. Like Nikita, I’ve wanted to take off my shoe and pound it on the table to get the attention of these dismissive investors.  Consider this chart of US land oilfield equipment & service spending:    US Land Oilfield Spending (Billions)

For those of us who grew up in the duck and cover days of the early ‘Sixties, an iconic image is Nikita Khrushchev protesting at the United Nations General Assembly on 12 October 1960.  The head of the Filipino delegation was giving a speech critical of the Soviet Union when Khrushchev demanded the speaker be dismissed.  The Assembly president allowed the Filipino to continue speaking, so a frustrated Khrushchev began to pound his fists on his desk in protest before ultimately picking up his shoe and banging the desk with it.  The image of a frustrated Khrushchev pounding on the table demanding attention is burned into the memories of people of a certain age.

That is analogous to how we’ve felt in the last half of 2017 when speaking with the large institutional investors of Wall Street and Europe.  Throughout 2017 investors in public securities were critical of the upstream oilfield equipment and service sector, declaring the industry on life support because the world was awash in West Texas oil tapped from plenteous, easy to access rocks.  Just because it’s easier, doesn’t mean it wasn’t strategic. Like Nikita, I’ve wanted to take off my shoe and pound it on the table to get the attention of these dismissive investors.  Consider this chart of US land oilfield equipment & service spending:


US Land Oilfield Spending (Billions)

 The 2017 market doubled after a sickly 2016.  The 2018 market growth shown here is based on the assumption that WTI oil prices will AVERAGE $60 during the year (which means oil prices would have to drop from today!).  If instead oil averages $70, the US market will rise to about $140B…almost equaling its all time high from 2014.  But is this profitable?  The investors want to know.  In the first half of 2017, we had market growth, but limited profit growth.  In the second half of 2017 (and particularly Q4 2017), the oilfield equipment and services sector saw a return to profitability on individual jobs and company wide.  We say 2018 will be profitable and growing.  If Nikita Khrushchev were the head of the oilfield, he would have burst a blood vessel in his head pounding on the table trying to capture the attention of the investors of the world last year.  A quick glance at share prices heading into January 2018 tells us he would have been right.  Pay attention, people, profitability is back. 

The 2017 market doubled after a sickly 2016.  The 2018 market growth shown here is based on the assumption that WTI oil prices will AVERAGE $60 during the year (which means oil prices would have to drop from today!).  If instead oil averages $70, the US market will rise to about $140B…almost equaling its all time high from 2014.

But is this profitable?  The investors want to know.  In the first half of 2017, we had market growth, but limited profit growth.  In the second half of 2017 (and particularly Q4 2017), the oilfield equipment and services sector saw a return to profitability on individual jobs and company wide.  We say 2018 will be profitable and growing.

If Nikita Khrushchev were the head of the oilfield, he would have burst a blood vessel in his head pounding on the table trying to capture the attention of the investors of the world last year.  A quick glance at share prices heading into January 2018 tells us he would have been right.  Pay attention, people, profitability is back.