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COVID-19 and the oil price collapse: The impact on oilfield services

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John Corrigan Partner, Strategy&, PwC US April 2020

The recent oil price plunge has delivered a crushing blow to the already beleaguered oil field services (OFS) sector. Many OFS companies were still struggling with their balance sheets and profitability in the wake of the 2014 price drop and the subsequent fallout when the oil price collapse hit in early March, sending prices into free-fall from the mid-$50s to the low-$20s. This unprecedented price drop was precipitated by twin storms: demand contraction from the COVID-19 crisis and the eruption of a price war between OPEC and Russia.

Looking ahead ... and setting priorities:

The oilfield services sector now faces operational concerns, as companies sprint to protect employees. At the same time, it’s striving to ensure operational continuity despite a significant drop in forecasted capital expenditure in the upstream sector. As OFS companies seek to respond to this latest onslaught, it’s important for them to set priorities targeting actions now and into the next year. 

Over time, we see priorities changing, and propose the following for OFS companies to bear in mind across the short-, medium- and long-term horizons:

Short term 


  • Keep staff safe, healthy and productive to sustain service delivery during pandemic
  • Manage supply chains carefully since virus-related restrictions may impede supplier delivery timing
  • Cut producer/customer spending and consider order cancellations
  • Balance staff capacity with demand through workforce changes (layoffs and furloughs)
  • Strengthen liquidity planning and secure capital

Medium term
(3-9 months)


Begin making operating-model shifts to align with new market dynamics likely to include:

  • Continued low capital spend levels among producers
  • Pricing pressure from producers seeking to lower costs and intense competition in a sector that’s long in capacity
  • Credit and collection issues as the low-price climate persists, pushing some customers closer to bankruptcy
  • Product line and market compression 
  • Sector consolidation as companies seek scale economies and product line synergies
  • Financial players eyeing the challenged environment seek to aggregate positions in advance of the recovery

Long term
(9 months and beyond)


In this environment, companies will likely need to make strategic shifts in their markets and operations to address structural changes in the industry that will probably emerge, including:

  • A consolidated sector, as companies exit the market and industry capex moderates to reflect the new supply/demand balance
  • Continued cost pressure as excess capacity lingers in the market as a result of sector resizing and producers grappling with lower crude prices and reluctant capital markets
  • Increased demands from customers for collaboration, partnering and innovation to drive costs down and well productivity up

Focus on the three C’s: customers, cost structure and capabilities 

Now that the storms have hit, where do OFS companies go from here? What are their greatest challenges, and how can they be solved?

As in any crisis, there are no easy answers. We believe it might be helpful for decision-makers to consider forging their path forward by looking at the future of their business through three broad lenses: customers, cost structure and capabilities.


Unfortunately, many customers of OFS companies are also having business challenges. Ensuring that companies retain and enhance customer relationships will be essential as the industry moves from the current state of shock into recovery. To help preserve and grow customer relationships, companies should consider focusing on the following:

  • Engage with customers throughout the COVID-19 crisis to develop protocols, strategies and policies to ensure safe, healthy operations for the company’s and the customers’ staffs.
  • Understand the value proposition offered to customers. What value do you offer beyond a product or service at a price? Is it, for example, superior product characteristics, service levels or technical expertise? In difficult times, people often hastily prioritize price above all, so make concerted efforts to use the value proposition to find ways to shift the customer focus from price to value. If companies explain how their value proposition actually helps their customers, those customers will often shift their priorities from price to value.
  • Look for ways to collaborate with customers to create value and reduce costs in and around products and services. Efforts like that shepherded companies to recovery from the 2015 downturn and also triggered advances in drilling, completion and well productivity. Demonstrate how the company is invested in customers’ success, and let customers know that companies in the sector have been through this before.

Cost structure

Companies need a good understanding of their cost structure and financial position, including the cost to deliver products and services to each of their markets and segments. This should be understood at some level of detail, as companies rebuild their financial positions and deal with pricing pressure from customers. A few first steps to consider include:

  • Prepare to shrink to grow. Companies should evaluate their portfolio and offerings to identify where they can most easily generate profits and where they will likely struggle to do so. Analyze these portfolio re-assessments over a series of market scenarios and consider any possible additional pricing pressures from the market. Be prepared to eliminate unprofitable or marginally profitable product lines, segments or markets to improve profitability. Focus precious investment dollars on areas that deliver the greatest returns.
  • Build a lean and nimble organization ... and cost structure. Given the level of uncertainty and the amount of change the industry is — and will be — going through, it is important to create a lean foundation that has the flexibility to adjust as market opportunities grow and contract throughout the recovery phase. Be prepared for ongoing volatility in the market. Create variability in capacity, and develop processes and capacity that respond to market changes rapidly.


In the haste of cost-cutting, some decision-makers cut too deeply or cut generically — inadvertently leaving them without the distinctive capabilities that earned them success in the first place. As the market continues to evolve, it will be important to retain and build capabilities to navigate these changes. Thus, aligning capabilities to strategy and the market will require:

  • Understanding what functions and capabilities make the company distinctive Make sure these include the market-sensing capabilities that will lead to a greater understanding when market dynamics and customer needs are changing, so the business can change with them.
  • Evaluating digital and technology capabilities to improve productivity and reduce cost These tools can boost productivity of people and assets of the organization. Furthermore, they can offer leverage to handle the ups and downs of the recovery.
  • Considering flexibility as a capability As companies look to restructure their business, they should look for ways to embed flexibility into their operating model. That will enable them to pivot with precision and swiftness during periods of volatility and avert making overly blunt or unnecessarily large changes to the business.
  • Enabling strong sales and operations planning (S&OP) capabilities The industry is going through a dramatic transformation, and companies must be able to quickly adapt to changing demands. OFS companies will need to rapidly translate the demand signals into changes in sales, marketing and production. A strong S&OP capability will be critical during a time when there is little room for error.

The double threat of COVID-19 and the oil price collapse will continue to raise questions and prompt decisions for the OFS sector over the coming weeks, months and maybe even years. While the future is uncertain, setting priorities now and focusing on the three C’s — customers, cost structure and capabilities — will help companies navigate these uncharted waters.

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