Spears oilfield services outlook dim

Richard Spears, Vice President of Spears and Associates addresses the Reuters Energy Summit in Houston June 4, 2009.

HOUSTON (Reuters) - The 2009 outlook for the oilfield service industry is much worse than expected as companies are hit hard by the steep decline in drilling, especially onshore in the United States, according to consulting firm Spears & Associates Inc.

The global recession has cut into industrial demand and supplies of crude and natural gas have swelled, depressing prices.

"We haven't gone through the downturn long enough for things to get really brutal," Richard Spears, vice president of consulting firm Spears and Associates, said on Thursday at the Reuters Global Energy Summit in Houston.

Revenue for the large global oilfield service companies, which include Schlumberger Ltd (SLB.N) and Halliburton Co (HAL.N), will decline 20 percent in 2009, Spears said.

Sales in the second quarter were hit particularly hard, the executive said.

Oilfield service companies, which help energy companies find and drill for oil and gas, are being hit by a "triple whammy," Spears said.

The number of rigs drilling for oil and gas has fallen to a 6-1/2 year low. There has also been a sharp drop in the number of wells that are readied for production and discounts are growing as exploration companies press for price breaks, Spears said.

"Across the board, discounts are massive," Spears said, noting that individual "frac jobs" -- used to increase production -- are now discounted by 65 percent to 80 percent from prices last fall.

And in a few basins, for example North Texas and the Midcontinent, some oilfield service companies are operating at a loss, Spears said.

Still, the U.S. drilling rig count will likely bottom out sometime during the third quarter at about 860 rigs, but it will take a year for the natural gas market to absorb its excess supply.

In Canada, the rig count is likely to increase only about 4 percent to 239 rigs in 2010. In international markets, the rig count is likely to drop nearly 7 percent to 865 rigs in 2010, according to Spears' data.

The drop in exploration has been a response to swelling supplies of natural gas as demand has slumped due to the recession. The U.S. natural gas market is oversupplied by 4 billion cubic feet per day, estimates the Spears firm, which provides market data to energy companies and institutional investors.

(Reporting by Anna Driver; Editing by Phil Berlowitz)