Market Assessment: Oilfield Distribution (Part 2)

Market Assessment: Oilfield Distribution (Part 2)

To revisit the foundational aspect of this research note (part one), we've analyzed the historical relationships between oilfield distributor revenues, rig counts, and national-level capital expenditure over the past four years. While this might seem self-evident, this examination is crucial for understanding the intricate interplay between capital spend and rig dynamics, providing a solid foundation for projecting oilfield revenues in 2024.

Moving forward, let's delve into the national-level outlook for FY24. In my initial Canadian outlook shared via a LinkedIn post with RGE Solutions back in February (link), I projected a capital spend of approximately $43 billion. However, since then, adjustments have been made to drilling and completion activity, along with considerations of cost inflation through 1Q24. Consequently, my revised forecast for Canadian capital spend stands at around $41.5 billion. This adjustment aligns with an average active rig count estimate of 174 rigs, with the 1Q24 actual rig count of 208 marking a -6% decline from 1Q23.

Turning our attention to the US, the national-level outlook for FY24 entails an estimated capital spend of approximately $104.5 billion, accompanied by an annual average rig count of 592 rigs. This represents a notable -9% year-over-year decline in capital expenditure and a -4% year-over-year decline in average rig activity.

With a comprehensive view of upstream activity in hand, I've leveraged regression parameters to formulate my oilfield distribution revenue outlook for key players such as NOW, MRC, and the Energy Field Services segment for RUS. Accounting for Canadian currency conversion, the projected FY24 revenues among the distributors covered sum up to approximately $1.034 billion. Leading the pack is RUS, with its three distribution channels in Apex Distribution, Comco Pipe and Supply, and the recently acquired Alliance Supply. Notably, my revenue estimate assumes that 50% of RUS’ Energy Field Store revenues are Canadian based.

From a market share perspective, NOW, MRC, and RUS collectively command around 70-75% of Canadian oilfield distribution spend. The remaining 25-30% is dispersed among entities like Ferguson Enterprises (Wolseley Canada), Swift Oilfield Supply, Baron Oilfield Supply, and Paragon Oilfield Supply. While detailed revenue breakdowns for these entities aren't readily available, estimates based on industry insights provide a robust understanding of market dynamics.

Shifting focus to the US market, a significant challenge lies in estimating the proportion of Ferguson plc’s (FERG) US-based revenue attributable to oil and gas activity. Considering the -9% year-over-year decline in national-level capital spend, I estimate FERG’s revenue at ~$1.9 billion for FY24, making it the second-largest US-based oilfield distributor.

Among the distributors covered, MRC emerges as America’s leader in oilfield distribution, with a projected revenue of approximately $2.74 billion for FY24. This represents a slight decline from its FY23 revenues of $2.85 billion. MRC's strategic focus extends beyond upstream operations to encompass midstream, refining, and petrochemical activities.

For NOW, my revenue estimate of ~$1.69 billion reflects a decline of -4%, aligning with my forecasted US upstream Capex decline of -9% year over year. This downturn can be attributed to NOW’s predominant sales strategy focused on upstream operations.

As for RUS and its US-based Energy Services division, an estimate exceeding $300 million is anticipated, considering 50% of total Energy Field Services revenues for FY24, coupled with a CAD to USD exchange rate of 0.65.

Furthermore, FY24 revenue estimates for two private distributors, Anvil Corp and Texas Pipe and Supply, surpass the $650 million threshold. In sum, the US oilfield distribution market is anticipated to reach ~$9 billion for FY24, constituting -9% of upstream national-level Capex.

So how accurate will these estimates be? 1Q24 earnings results will be released in the coming two weeks and each company’s webcast can be found at the following links:

• RUS, 5/2/24, 09:00 AM ET (webcast)

• MRC, 5/9/24, 10:00 AM ET (webcast)

• NOW, 5/10/24, 09:00 AM ET (webcast)

• FERG, 6/4/24, TBD (link)

Any questions or comments? Feel free to reach out to me directly via email at [email protected].

Companies Mentioned

• Now Inc. (NOW)

• MRC Global (MRC)

• Russel Metals (RUS)

• Apex Distribution

• Comco Pipe and Supply

• Alliance Supply

• Ferguson plc (FERG)

• Wolseley Canada

• Wolseley Industrial

• Swift Oilfield Supply Incorporated

• Baron Oilfield Supply

• Paragon Oilfield Supply

• Anvil Corporation

• Texas Pipe & Supply

_{Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Patrick Enwright accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Patrick Enwright makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.}