As the energy sector undergoes constant evolution, companies like NCS Multistage Holdings are adapting to challenging market conditions and industry-wide completion efficiencies that impact traditional revenue models. In their third-quarter 2024 results, NCS provided a clear picture of how it is strategically navigating lower natural gas prices, reduced activity in key regions, and the ongoing trend toward more efficient drilling and completions. Despite these headwinds, NCS’s strategic expansion into international markets and high-margin projects showcase resilience and adaptability in a volatile market.
Market Headwinds: Lower Natural Gas Prices and Reduced Activity
In 2024, many energy companies have felt the impact of lower natural gas prices, which affect both production and service activity levels. For NCS, these challenging conditions have been evident in the U.S., where natural gas price pressures have led to a slowdown in certain services and reduced completion activity. This lower level of customer demand has impacted service revenues, though NCS’s ability to offset some of this impact through other revenue streams underscores their flexibility.
Industry-wide reductions in rig counts and unconventional completion projects further highlight the sector’s challenges. With fewer active rigs and completions, NCS faces a natural reduction in demand for its well construction and completion optimization products. Despite these pressures, the company has continued to deliver strong financial results, posting a 15% year-over-year increase in revenue for Q3, thanks in part to its strategic diversification and focus on higher-margin international projects.
Completion Efficiencies: A Double-Edged Sword
Completion efficiencies, which refer to advancements in drilling and completion processes that reduce time and cost, have been a double-edged sword for companies like NCS. On one hand, these efficiencies make projects more attractive by lowering operational expenses for their clients; on the other, they decrease the need for prolonged completion services, which can impact service-based revenues. NCS projects a 5-15% sequential revenue decline in Q4 2024, partially due to the effect of these efficiencies, especially in the U.S. and Canada.
The industry’s focus on maximizing output with fewer resources means operators need fewer well completions to achieve production targets. For service providers, this results in fewer engagements per well, even though the efficiency improvements are broadly positive for the industry as a whole. NCS’s proactive strategy of expanding into international markets with less emphasis on completion efficiency trends is one way it has adapted, effectively diversifying its revenue streams beyond domestic completion services.
Turning Challenges into Opportunities: NCS’s Strategic Moves
While U.S. and Canadian markets may be slowing, NCS has found growth in international markets such as the Middle East and the North Sea, where it has focused on high-margin projects that provide value beyond traditional completion services. By enhancing its footprint in these areas, NCS has tapped into regions where market conditions differ and where its expertise in well optimization is highly valued. Notably, NCS saw a 124% improvement in international revenue during the first nine months of 2024 compared to the previous year, underscoring the strength of this strategy.
In addition to its international focus, NCS is investing in high-margin technologies, such as tracer services and specialized frac systems, which help clients achieve better results with lower overall operational costs. This approach has allowed NCS to weather the impact of completion efficiencies by offering solutions that align with clients’ needs for more efficient, yet still highly effective, completion processes.
Looking Forward: Building Resilience in a Dynamic Market
As 2024 draws to a close, NCS’s outlook remains cautious but optimistic. The company expects lower revenue in Q4 due to seasonal slowdowns and the ongoing impact of completion efficiencies, but its proactive adjustments and strategic growth in international markets position it well for the future. By focusing on high-margin projects and maintaining a lean operational structure, NCS continues to show resilience in the face of challenging conditions.
NCS Multistage Holdings is an example of how energy companies can adapt to evolving industry trends while continuing to deliver value to stakeholders. With a focus on navigating completion efficiencies and expanding into new markets, NCS is proving that adaptability and innovation are essential to thriving in a competitive and fluctuating sector.
