Historically, oilfield services companies seemed to be financially more sensitive to crude oil price volatility compared to companies doing exploration and production. This was evident both in times of rising and falling price, imposing serious challenges to them. The year 2014 marked, after a 40 percent drop in the price of oil, the agreement for one of the largest acquisitions in the industry between two of the biggest international oilfield service providers; that of Baker Hughes, Inc. by Halliburton Co. The implications of these price fluctuations significantly influence this sector of the industry shaping the narrative around it.

This paper evaluates the extent to which crude oil price variations affect the service companies in the stock market compared to exploration and production (E&P) companies. Regression analysis is performed on two sample groups; one consisting of service companies and the other of E&Ps. Daily data from the beginning of 1986 until early 2015 is used for both stock and crude oil prices. When compared to the E&Ps group, the service companies group is more oil price sensitive throughout the whole period by a factor of almost six and a half. In particular, from 1986 to 2007 this factor is 6.3. For the post 2008 period, a reverse causality effect is observed for both groups with changes in the oil price, with the service companies group slightly less sensitive, yielding a factor of 0.9.

The factors responsible for the observed phenomena are evaluated, backed with data analysis. The higher economic limits of unconventional compared to conventional energy resources, make the service companies specializing in unconventional play development struggle as these are the first to become uneconomic in times of falling price. The downstream operations most E&Ps have unlike service providers, enables them to buffer losses in their upstream sectors when price drops and vice versa. Also, the decreasing dependence of the E&Ps on service companies as they grow bigger makes the latter less adroit to price variations than the former. Finally, the rise of the national oil companies in recent decades in terms of production and reserves control, has led to additional competition against service companies by international oil companies for providing specialized technical assistance.

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