Abu Dhabi: Oil field service companies are under pressure from oil producers to reduce charges for the services they render due to drop in oil prices.
A top executive of Al Mansoori Petroleum Services said that some customers are demanding up to 20 per cent reduction in the charges.
“We are really suffering as we have to accept these lower charges. This is the new reality,” said Ebrahim Al Alawi, Deputy Chief Executive Officer of the Abu Dhabi-based oil service company.
He said the low oil price environment is impacting the revenues of the company.
“When we reduce our prices, the revenue that comes in will be less. We are trying to reduce costs by creative ways so that we can survive without cutting jobs or reducing the salaries of our employees,” he added.
The company which employs more than 3,000 people has projects all over the Middle East including in troubled zones like Syria, Libya and Iraq.
The company is considering an IPO debut in future once market conditions improve.
Al Alawi said they are busy in the UAE but are under pressure from Adnoc to reduce charges.
“Adnoc group is telling us to reduce our prices. We understand it because they are also under pressure from the government. It is like a domino effect.”
Oil prices have dropped by more than 60 per cent since 2014 due to overproduction and weak demand. Th prices recovered in the last two months but are still low compared to two years ago with international benchmark Brent trading at slightly more than $50 per barrel on Thursday.
“The market is extremely competitive and everyone’s requirement is to get the work done at a lesser cost. Clients are asking discounts on agreed cost at the time of final invoicing,” said Ashik Subahani, Managing Director of Great Waters Maritime.
With oil prices remaining low, a London based analyst predicted difficult year for service companies.
“There has been a big reduction in the upstream capital expenditure of about 20 to 25 per cent in 2015 and further decline is anticipated this year. It is unusual to have two big declines in a row and a lot of that will be felt by oil field service companies in terms of revenues,” Richard Mallinson, an analyst from Energy Aspects told Gulf News over phone.
He said the Middle East, which has been one of the most resilient areas to low oil prices is feeling the heat with more projects being pulled back.
“Iraq has reduced spending, in the Gulf countries, projects have been deferred or being reduced in size, and in Iranian upstream sector, we haven’t yet had big wave of contracts of projects starting up that might eventually lead to new business for the service companies.”
Oil service companies like the rest of the industry will be looking for recovery of oil prices, he said adding that until the oil companies start increasing in the number of projects in the upstream sector and start spending more they are not going to feel the benefit of recovery in oil prices.
From less than $30 per barrel in January, oil prices have recovered to around $50 per barrel due to disruptions in supply and increase in demand.
Organisation of the Petroleum Exporting Countries (Opec) will meet in Vienna on June 2 to decide the future course of action on stabilising oil prices.
