The 2012 U.S. Presidential election has led to an effective “moratorium” on any meaningful regulatory changes to affect the oil & gas industry. The last 18 months in the oil patch have seen a distinct growth in liquids plays on the heels of dramatic oversupply of natural gas and surges in pricing for Natural Gas Liquids (NGLs). However, NGL prices have fallen recently due to a glut of supply, although continued production is still economic at the lower prices. Rigs have shifted from dry gas resource plays to liquids plays to take advantage of the distinct divide between prices on an energy-equivalent basis.
Major integrated oil and gas companies will soon set their capital spending plans for 2013, which typically signals to the rest of the industry the outlook for the coming year. U.S. rig counts have begun to decline over the last few months. Large service companies have recently announced strong second quarter earnings but are cautious regarding the second half of 2012 as margins are declining in key service lines such as fracing. For the onshore U.S., the outlook for 2013 suggests a challenging environment, although it is not expected to be a prolonged downturn. In anticipation of additional liquids production coming online through 2014, much of the midstream space should hold up well as projects begun in late 2011 will require high levels of service and manufacturing support as the infrastructure is built out. Offshore U.S. represents a bright spot for the oil & gas industry, as regulatory changes have been effected, and the past year has seen a tremendous increase in permitting across the Gulf of Mexico in preparation for a heavy drilling year in 2013. Spending plans are being set, yielding multiple opportunities for new entrants in the rather fragmented deepwater service environment. Refineries in the Gulf Coast are investing additional capital in upgrades as pipelines connecting the Mid-Continent to the Gulf Coast come online in the next 18-24 months to transport increasing amounts of oil being produced in other parts of the U.S.
Although 2012 is only half over, 2013 is shaping up for a challenging year for U.S. onshore service firms as supply has caught up with demand, with deepwater, midstream, and downstream service sectors expecting continued growth.