Moody's Investors Service says the oil price plunge will push exploration and production (E&P) companies around the globe to cut their spending on exploration and drilling, slowing revenue growth of China's (Aa3 stable) oilfield service (OFS) companies in 2015 and into 2016.
''In addition to the impact on revenues, Chinese oilfield service companies will also see their margins weaken over the next two years as their exploration and production customers negotiate lower rates," says Chenyi Lu, a Moody's vice president and senior analyst.
Of the four Chinese OFS companies that Moody's rates, Honghua Group (B2 negative) and Anton Oilfield Services Group (Ba3 negative) are the most reliant on E&P spending, making their revenues most vulnerable to the oil price drop.
''Increased competition from the oilfield service subsidiaries of Chinese national oil companies for a smaller pool of exploration and production spending will pressure Anton Oilfield Services' margin and revenue growth,'' says Lu.
Moody's expects Anton's revenue growth to rebound moderately to around 15% in 2015, following a decline of 20% in 2014. But, the absolute revenue will be below the levels Anton posted in 2013.
Meanwhile, Honghua's revenue will decline by about 5.5% in 2015, as E&P companies cut back on new orders for land drilling rigs, delay replacements and place fewer orders for offshore equipment.
On the other hand, continued E&P activities in the Middle East-Honghua's major market accounted for 45% of its sales in 1H 2014, will likely provide some support for the company's revenue.
Hilong Holding (Ba2 stable) year-on-year revenue growth will likely be 10% in 2015, up from Moody's estimate of 3% for 2014, mainly because of new business.
Hilong's oilfield equipment and manufacturing services segment-accounting for about 50% of the company's revenue in H1 2014-will remain steady because E&P companies need these products and services to continue extracting oil from wells they have already dug.
Hilong therefore has less exposure to new exploration activities and the reduced capital expenditure of E&P companies.
Moody's expects China Oilfield Services (COSL, A3 stable) year-on-year revenue will decline by 10%-15% in 2015 but will remain above 2013 levels, as rates for its services and the utilization rates of its drilling rigs decline.
The company's national oil company parent-China National Offshore Oil Corporation (Aa3 stable) will likely continue directing the majority of its oilfield services needs to COSL, which will support the company's revenue in the lower oil price environment.