Rebuilding the pipeline: How oilfield services and equipment companies can craft a new recipe for success

Over the last 15 years, the U.S. has become the largest global producer of oil and gas. American oil production expanded from 5 million barrels daily to more than 13 million, while natural gas production ballooned from around 50 billion cubic feet daily to more than 100 billion. 

The industry, in part, has the oilfield services and equipment (OFSE) sector to thank for the uptick. As the source of critically trained labor, high-tech equipment and services, and extensive investments, the OFSE sector powers the global upstream oil and gas business. Alongside growth and operational improvements, the OFSE sector has also significantly helped to reduce production costs, allowing for more affordable energy globally (Figure 1).
 

Crucially, the OFSE sector has also enabled oil and gas to thrive in the current energy environment, as well as the likely future direction, by helping to monitor and reduce emissions. The industry’s story of growth, innovation, and efficiency over the past two decades is remarkable—cheaper and more abundant energy sources, with reduced environmental impact.
 

Navigating uncertain market conditions

Executives in the OFSE sector are used to challenges. The industry has experienced deep and pronounced cycles, usually due to regular swings in commodity prices. The swings not only impact the sector’s financial results but also employment numbers and its ability to sustain research and development investments.

OFSE executives today face a low commodity price environment, while also balancing investor demands for stronger returns on capital. 
 

Oil prices peaked in mid-2022 and have steadily declined since, with the future projections now approximately $60 per barrel through 2030 (Figure 2). Although U.S. upstream operators have continued to expand production, Wall Street has pressured operators to focus on growth within cash flow, moderating activity levels and ensuring a steady return of capital to investors. 

OPEC+ recently announced plans to restore 2.2 million barrels per day of previously cut production by the end of 2026. Production is also expected to ramp up in the U.S., Canada, Guyana, and Brazil. Given the low demand growth outlook of the global oil market, these dynamics could lead to a major imbalance of supply and demand.

In response, leading OFSE operators are focusing on appeasing investors as well, with the largest players—including Halliburton, Baker Hughes, and Schlumberger—pledging to return a significant portion of free cash flow to shareholders annually. Return of capital is now at multi-year highs and we are seeing share-repurchase programs and dividends for OFSE companies of all sizes. Total returns to shareholders of this magnitude last occurred before the downturn in 2015. Investors are generally supportive of the return of capital programs; however, OFSE sector multiples have trended downward to levels also not seen since before 2015, suggesting more limited growth prospects and an uncertain outlook for the sector as a whole (Figure 3).
 

Unfortunately, geopolitical uncertainty poses further challenges to the industry. U.S. tariff policy is rapidly changing and actively being litigated—the current reinstatement of 50% tariffs as of June 4 on steel will increase costs for new drilling activity, while further tariffs could create cascading cost pressures on upstream producers. Coupled with lower oil prices, upstream activity could contract as operators lay down rigs more aggressively, reducing demand for OFSE products and services.

So, in this environment, what practical actions should OFSE players be taking? We recommend adopting a five-pronged plan to improving performance.

1. Improve equipment utilization and asset management practices: Companies that focus on extending the lives of their assets by boosting repair and maintenance processes, as well as those that develop internal procedures to seamlessly shift equipment to its most impactful use cases, will over time reduce their reliance on additional investment.  
    
2. Optimize working capital usage: Effective working capital management is a critical lever for ensuring a business’s financial health and sustainability. Many OFSE players deal with customers that are slow to pay invoices and suppliers that demand rapid payment for their goods and services. Inventory management can also be challenging as OFSE companies often have a wide footprint of operating locations where equipment can accumulate and be underutilized. 
   
   Companies must focus on controlling what they can control. Tactics include streamlining and ensuring accurate invoice preparation, aggressively collecting agreed-to payments, and avoiding early payment of supplier invoices.
    
3. Fine-tune organization designs and SG&A costs: A multitude of different product and service lines and geographies served often results in complex matrix organizations which can add complexity and make clear accountability difficult to achieve. Clarifying operating models, simplifying organization structures, and leveraging advanced analytics and AI/ML to automate or augment internal processes are all opportunities to reduce costs.   
    
4. Regularly review local cost structures and pricing strategies to address underperformers: Each product and service line within an OFSE company portfolio has unique characteristics and competitive dynamics. Being proactive in addressing chronic underperforming locations, services, and customers will help to improve return on capital.
    
5. Invest in innovation that delivers efficiencies and that enables resource discovery and extraction at the lowest possible cost: Continuing to support the development of lower breakeven costs within the industry will ensure longevity and improve profitability for customers and service companies alike.
    

AlixPartners has successfully led and implemented go-to-market strategies and cost-reduction initiatives for major OFSE companies. Our experts scrutinize a business from end to end, studying its current processes and measuring against industry best practices and market trends to tailor the right solution.

Please reach out to have a conversation on how AlixPartners can help you achieve your value-creation goals for 2025 and beyond.