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* Customers have slashed $200 billion worth of projects
* Five worst-affected companies could need $7 bln in capital
* Those with Middle East, Asia exposure fare better
By Karolin Schaps and Abhiram Nandakumar
LONDON, Sept 16 (Reuters) - Peter Rose's problem ofuncertainty is typical for the oil and gas services industry atthe moment. New orders have dried up and he has no idea howprofitable his firm will be next year and beyond.
The outlook for companies such as Hunting, whereRose is finance director, seems grim as clients in the energyindustry have already cancelled $200 billion in investments dueto weak oil prices, and more cuts are likely.
There are exceptions among the businesses that supply oiland gas projects with anything from anti-corrosion paint tocomputer software that simulates pipeline installation.
Those active in areas where oil and gas can be extractedcheaply are doing better, while diversified groups with strongfinances are trying to snap up weaker rivals.
But benchmark crude is back below $50 a barrel afterrallying in the spring, and prices above $100 - as they wereuntil mid-2014 - are a distant memory. The energy producers aretherefore saving hard by cutting or cancelling projects, hurtingtheir suppliers who rely heavily on plentiful order books.
This makes financial planning difficult, if not impossible,for services firms like Hunting, a British-based group foundedin 1874. Rose may exaggerate to make his point, but the problemis clear.
"I haven't got an order book. We don't know if revenue willcontinue at the current rate or whether it will decline," hetold Reuters last month. "What is Hunting going to deliver interms of profitability? I haven't got a clue."
European oil and gas services companies performed relativelystrongly in the first six months of 2015 as they worked throughthe backlog of existing orders. But delivering these results,they also warned of tough times ahead.
Their typically well-fed project pipelines are running thintowards the end of next year, with little sign they will bereplenished quickly.
"The backlogs of oil service companies tend to look light inaggregate for second half 2016 due to the time lag ofinstallation work start-up from project sanction and award,"said Rohan Murphy, energy equities analyst at Allianz GlobalInvestors. "I am concerned by this threat."
PROJECT VOID
The FTSE All Share Oil Equipment and Services index has fallen 14.4 percent since early May, when crudeprices started slipping again after the brief upturn, andanalysts expect many of the stocks to fall further as theyfactor in the full impact of the project void.
In a worst-case scenario where oil prices don't recoveruntil 2017 and energy companies reduce spending further,analysts at Canaccord Genuity said the five most affectedcompanies would jointly need as much as $7 billion in capital tostay in business. They named these as Italy's Saipem,Swiss Transocean and France's CGG, plusSeadrill and Subsea 7 of Norway.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC: Oil equipment & services share index vs oil price: http://link.reuters.com/jak65w ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Oil prices are widely predicted to stay weak for longer thanpreviously expected, with many banks including Goldman Sachs,Barclays and UBS slashing their 2016 forecasts.
Therefore, further capital expenditure cuts among oil andgas developers are likely. The exception is the Middle East andAsia where crude is cheaper to produce and new projectstherefore depend less on high prices. Suppliers with a strongpresence there are better placed.
The division of Amec Foster Wheeler that includesthe Middle East, for example, grew six percent in the first halfof the year. Chief executive Samir Brikho told Reuters that heexpects revenue to continue growing in 2016 and 2017.
FINANCIAL BACKBONE
Those which offer more diversified products and have astronger financial backbone can hunt for opportunistic deals.
Oilfield services provider Halliburton has made anoffer to swallow rival Baker Hughes for $35 billion,while Schlumberger has weighed in on equipment makerCameron International in a $14.8 billion deal.
Firms which specialise in one part of the services market,such as offshore drilling, are in a more difficult situation.
Credit rating agency Moody's said it expected virtually alloil and gas drilling companies to see "significant crediterosion" if conditions remain weak. The agency recently placedas many as 11 offshore drillers on review for downgrade.
In such a cut-throat environment, the services companies areaccepting heavy discounts for the few deals they can secure ascustomers have the upper hand at the negotiating table.
North Sea oil producer Enquest, which hires servicesfirms, said it had negotiated discounts of up to 50 percent onsome contracts, while the industry consensus on new rates isaround 20 percent below previous years.
"We give our contractors all notice that we're going to firethem. So we sit with them and say: 'Do you want to negotiate ordo you want to bid things out?'," Enquest chief executive AmjadBseisu told Reuters.
Stuck in a weak bargaining position, the services companiesalso have to take on a higher share of project risks which oilproducers are increasingly unwilling to shoulder themselves.
"We are able to be selective and in different circumstancesto transfer a bit of risk to the service side," said TonyDurrant, chief executive of North Sea oil producer Premier Oil.
Rig providers, for example, now charge lower rates for dayswhen their equipment is not used due to poor weather, a riskthat lay previously with the client. "When rigs are very shortthey are quite happy to use their negotiating power. It's abalance," said Durrant. (editing by David Stamp)
