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Oil Services Costs - A Theme To Watch

In my article on Legacy, I pointed out that I expected costs to rise in 2017 as oil services firms downsize and work out a way to return to profitability. This seems inevitable as the oil services firms have been stating that the cost structures are unsustainable for a year now. These unsustainable prices have lead many to believe there are efficiencies in North American shale E&P that really don't exist.

What happens if these costs go up? It likely changes the economics of shale and makes it less competitive, reversing some of the 'efficiencies' from the last year.

Have a look at this article:

www.bloomberg.com/news/articles/2016-04-...

I think something has to happen in this space, most likely it'll be that the supply of services will keep shrinking to match demand and some minimal pricing power will return to these firms.

Keep an eye on this as it's likely to influence any recover in North America.