Forecasts often refer to a funny term: CAGR. Compound Annual Growth Rate. It is a broadly accepted method for calculating growth rate over a period of time. Here’s the formula:
CAGR = ( EV / BV)1 / n - 1
where:
EV = Investment's ending value
BV = Investment’s beginning value
n = Number of periods in years
Every year Spears & Associates publishes a measure of several segments of the oilfield equipment and services sector – artificial lift to wireline services – in a research piece called the Oilfield Market Report. In the most recent edition of the OMR we’ve projected all 32 market segments through 2022.
Here’s a chart of the highest growth segment, the lowest growth, and one smack in the middle:
2018-2022 CAGRs
Highest: Rig equipment has been flat on its back for 4 years. It is a shadow of its former self. We think that international and offshore drilling will cause drilling contractors to invest in upgraded equipment over the next 4 years… but not right away. Expect a strong start in about 2020.
Lowest: The offshore production market tends to grow slowly most years. Floating production systems are pointing to a fairly steady upward trend.
Median: Coiled tubing represents the middle of the pack, weighing in at 13% CAGR between now and 2020.
That’s quite a wide range of growth rates, and it indicates two things:
The oilfield may look like one big mass of companies and services to an outsider, but it has a lot of moving parts that, well, move in broadly different directions; and
Over the next several years, some of these oilfield sub markets will surge, collapse and surge again, ending higher while others will march steadily upward, albeit slowly.
The devil, as always, is in the details.