Growth in the oilfield service industry seems to be leveling off. After strong and steady growth in 2022 and 2023, the industry posted a more modest 2.4% increase last year and is forecast to shrink by 0.6% this year.

Market volatility, heightened geopolitical tensions and cost and capacity challenges set the scene for a mixed outlook for the oilfield services industry this year, with the effects unevenly distributed across segments and regions – all against the backdrop of the continuing energy transition. We observe that the oil markets are still oversupplied, and capital budgets within oil and gas are forecast to shrink 2% this year across the upstream, midstream and downstream sectors. This means markets are entering a second year where investments are to remain somewhat flat, and this is now starting to impact not only short-cycle budgets but also longer-cycle budgets, such as offshore and midstream, putting a toll on all service market categories.

Oilfield services outlook

Growth in the oilfield service industry seems to be leveling off. After strong and steady growth in 2022 and 2023, the industry posted a more modest 2.4% increase last year and is forecast to shrink by 0.6% this year, led by a 3.8% slide in the shale/tight oil service segment and a 1.1% drop in the ‘other onshore’ sector. At the same time, there are growth opportunities in other segments, including offshore supply, which is expected to expand by 1.8% this year. With increasingly few healthy markets for contractors to chase, it appears the peak of the cycle could have been 2024 and that contractors now need to accelerate their low-carbon plans. In fact, looking at global markets across the key oil and gas categories reveals that the picture is not much better within the facility and operations-driven segments.

The reduction in onshore project sanctioning in 2024 and flattish sanctioning activity offshore in the last three years means these contractors will not be able to grow revenues within these long-cycle categories. We still, however, see offshore deepwater activity remaining high, challenging supply chain capacity and driving up project costs and lead times, but additional revenue growth and margin expansion for suppliers depends on a step-up of offshore sanctioning over the next 24 months – something that currently appears very uncertain due to an oil oversupply, cost increases and an unstable geopolitical environment. Overall, 2025 will have fewer such pockets of growth.

Inflation, capacity and geopolitical factors will be key factors influencing growth

At the same time, this year’s outlook is hampered by the significant effects of inflation, capacity constraints, and geopolitical factors. To come out on top, operators and suppliers need to take measures to make their supply chains resilient to a wide array of interconnected challenges. In the subsea segment, subsea tree awards are projected to increase by more than 22% this year while supplier capacity has not kept pace, resulting in high capacity utilization and upward pressure on prices.

The offshore drilling industry was subject to both capacity and inflation risk last year, which is expected to persist in 2025. The offshore segment is generally less sensitive to geopolitical events in the short term unless there is a direct operational disruption. Onshore rig activity can be more reactive to changes in demand and well costs. For land drilling, tariffs on US imports of oil country tubular goods (OCTG) pose the most immediate threat.

Other changes in US leasing and permitting policy during President Donald Trump’s second term can create a more sustained impact, though the main factor will still be oil-price-driven initiatives and their effect on activity and growth in the Permian play.

Breakdown analysis by service category

In the offshore vessels segment, utilization rates rose for most companies last year, partly because players brought only a limited number of warm- and cold-stacked vessels back into the market, and we see strong demand for most offshore vessels categories in 2025. In the engineering, procurement and construction (EPC) segment, backlogs and order intake have been on an upward trend, while available capacity has been falling, resulting in a tight market. Moreover, a combination of wage inflation and rising material costs is putting pressure on EPC contractors and challenging their ability to maintain competitive pricing and secure new projects in a constrained supply chain environment. Trump’s return heralds a likely rise in protectionist measures, including higher US tariffs and tolls on imported goods. If the country imposes additional pressure on China with toll barriers in the range of 60% to 100%, the cost of essential equipment for energy projects could nearly double for developers that depend on China for supplies.

In our analysis of the risks for key oilfield service segments, we find that the subsea, offshore vessel and drilling, and EPC markets are more at risk from capacity constraints and inflationary pressure, while geopolitical risk is a greater concern for the OCTG segment and North American drilling and completion activity, particularly in light of Trump’s second term.

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