Service sector upbeat as US drillers boost spending
The biggest oil field service companies expect customer spending in North America to jump in 2022 as producers ramp up drilling to capitalise on crude prices that have surged to a seven-year high.
"This is momentum that I have not seen in a long time," Halliburton chief executive Jeff Miller said last week after predicting a 25pc increase in spending by US drillers. The largest provider of hydraulic fracturing (fracking) services boosted its dividend to 12¢/share from 4.5¢/share — the first increase since late 2014 — after its profit more than doubled in the fourth quarter.
Along with Baker Hughes and Schlumberger, Halliburton predicts that the industry is in the grip of a multi-year up-cycle — at home and abroad — supported by shrinking spare production capacity as demand roars back from Covid-19, following a period of under-investment. "Tight oil supply and demand growth beyond the pre-pandemic peak are projected to result in a substantial step-up in capital spending," Schlumberger chief executive Olivier Le Peuch says.
Investors and financiers at the Argus Americas Crude Summit in Houston, Texas, last week similarly predicted a spending rebound, with the top-producing Permian basinattracting the lion's share, but regions such as the Bakken and the Scoop and Stack formations in Oklahoma also seeing increased investment. US drilling will remain led by privately held operators, while publicly listed peers continue to focus on shareholder returns with any growth likely to be on the modest side.
Part of the expected spending increase is down to inflation in the shale patch, as demand accelerates for drilling equipment. Services pricing pressures are already reported across some of the bigger shale basins such as the Permian, with anecdotal evidence of labour shortages and tight supplies of fracking equipment. Supply-chain disruptions are also lingering from last year.
‘Sold out'
The well completions market in North America is approaching 90pc utilisation, and Halliburton says it is "sold out". Pricing for its fracking fleets is also moving higher. "Anticipated demand growth for equipment provides a runway for us to increase pricing throughout the year," Miller says.
Halliburton has already obtained higher prices across service lines including drilling, cementing, drill bits and artificial lift. Meanwhile, increased costs for trucking, labour and sand are being passed onto customers. Many operators ran down their inventory of drilled but uncompleted wells last year to keep costs down, a trend that is now reversing. "This will further increase the call on equipment as operators add rigs throughout the year," Miller says. Baker Hughes chief executive Lorenzo Simonelli says the performance of its oil field service business is "still below our broader objectives" owing to commodity price inflation and supply chain issues, but sees progress on resolving logistical constraints.
Schlumberger expects capital spending by customers will increase by at least 20pc in North America this year, with international spending due to climb by over 10pc. Le Peuch expects "more pervasive" improvements in terms of services pricing in response to market conditions as capacity tightens. The upbeat outlook comes as a new report by US private equity firm Kimmeridge Energy Management warns shale producers against returning to their fiscally irresponsible ways of old.
Even though shale explorers were among the best stock performers last year, their valuations are languishing. If the sector wants to lure investors back, it needs to convince Wall Street that it can resist the temptation to drill at full throttle even as oil prices hit new highs, it says. "Sustaining discipline through an up-cycle will require management teams to make difficult decisions," Kimmeridge says.
| Oil service firms' results 2021 | $mn | |||||
| Company | 4Q | 4Q20 | ±% | FY21 | FY20 | ±% |
| Profit | ||||||
| Halliburton | 824 | -235 | na | 1,457 | -2,945 | na |
| Schlumberger | 601 | 374 | 61 | 1,881 | -10,518 | na |
| Baker Hughes | 294 | 653 | -55 | -219 | -9,940 | na |
| Revenue | ||||||
| Halliburton | 4,277 | 3,237 | 32 | 15,295 | 14,445 | 5.9 |
| Schlumberger | 6,225 | 5,532 | 13 | 22,929 | 23,601 | -2.8 |
| Baker Hughes | 5,519 | 5,495 | 0.4 | 20,536 | 20,705 | -1.0 |
| North America revenue | ||||||
| Halliburton | 1,783 | 1,238 | 44 | 6,371 | 5,731 | 11 |
| Schlumberger | 1,281 | 1,167 | 9.8 | 4,466 | 5,478 | -18 |
| Baker Hughes | na | na | na | na | na | |
Related news posts
Canadian rail workers vote to launch strike: Correction
Canadian rail workers vote to launch strike: Correction
Corrects movement of grain loadings from a year earlier in final paragraph. Washington, 2 May (Argus) — Workers at the two major Canadian railroads could go on strike as soon as 22 May now that members of the Teamsters Canada Rail Conference (TCRC) have authorized a strike, potentially causing widespread disruption to shipments of commodities such as crude, coal and grain. A strike could disrupt rail traffic not only in Canada but also in the US and Mexico because trains would not be able to leave, nor could shipments enter into Canada. This labor action could be far more impactful than recent strikes because it would affect Canadian National (CN) and Canadian Pacific Kansas City (CPKC) at the same time. Union members at Canadian railroads have gone on strike individually in the past, which has left one of the two carriers to continue operating and handle some of their competitor's freight. But TCRC members completed a vote yesterday about whether to initiate a strike action at each carrier. The union represents about 9,300 workers employed at the two railroads. Roughly 98pc of union members that participated voted in favor of a strike beginning as early as 22 May, the union said. The union said talks are at an impasse. "After six months of negotiations with both companies, we are no closer to reaching a settlement than when we first began, TCRC president Paul Boucher said. Boucher warned that "a simultaneous work stoppage at both CN and CPKC would disrupt supply chains on a scale Canada has likely never experienced." He added that the union does not want to provoke a rail crisis and wants to avoid a work stoppage. The union has argued that the railroads' proposals would harm safety practices. It has also sought an improved work-life balance. But CN and CPKC said the union continues to reject their proposals. CPKC "is committed to negotiating in good faith and responding to our employees' desire for higher pay and improved work-life balance, while respecting the best interests of all our railroaders, their families, our customers, and the North American economy." CN said it wants a contract that addresses the work life balance and productivity, benefiting the company and employees. But even when CN "proposed a solution that would not touch duty-rest rules, the union has rejected it," the railroad said. Canadian commodity volume has fallen this year with only rail shipments of chemicals, petroleum and petroleum products, and non-metallic minerals rising, Association of American Railroads (AAR) data show. Volume data includes cars loaded in the US by Canadian carriers. Coal traffic dropped by 11pc during the 17 weeks ended on 27 April compared with a year earlier, AAR data show. Loadings of motor vehicles and parts have fallen by 5.2pc. CN and CPKC grain loadings fell by 4.3pc from a year earlier, while shipment of farm products and food fell by 9.3pc. By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
FTC clears Exxon-Pioneer deal but bars Sheffield
FTC clears Exxon-Pioneer deal but bars Sheffield
New York, 2 May (Argus) — US antitrust regulators signaled they will clear ExxonMobil's proposed $59.5bn takeover of Pioneer Natural Resources but banned the shale giant's former chief executive officer from gaining a seat on the board. A proposed consent order from the Federal Trade Commission seeks to stop Scott Sheffield, Pioneer's former chief executive, from taking part in "collusive activity" that would potentially raise crude prices and cause US consumers to pay more at the pump. The order paves the way for ExxonMobil to close its blockbuster deal for Pioneer, which will make it the leading producer in the prolific Permian shale basin of west Texas and southeastern New Mexico. It is also the top US oil producer's biggest transaction since Exxon's 1999 merger with Mobil. ExxonMobil's Permian output will more than double to 1.3mn b/d of oil equivalent (boe/d) when the acquisition closes, before increasing to about 2mn boe/d in 2027. The FTC, which has taken a tougher line on mergers under the administration of President Joe Biden, has paid close attention to oil deals announced during the latest phase of shale consolidation. Only this week, Diamondback Energy said it had received a second request for information from the regulator over its $26bn proposed takeover of Endeavor Energy Resources. And Chevron's planned $53bn acquisition of US independent Hess has also been held up. The FTC alleged in a complaint that Sheffield exchanged hundreds of text messages with Opec officials discussing crude pricing and output, and that he sought to align production across the Permian with the cartel. His past conduct "makes it crystal clear that he should be nowhere near Exxon's boardroom," said Kyle Mach, deputy director of the FTC's Bureau of Competition. ExxonMobil said it learnt about the allegations against Sheffield from the FTC. "They are entirely inconsistent with how we do business," the company said. While Pioneer said it disagreed with the FTC's complaint, which reflects a "fundamental misunderstanding" of US and global oil markets and "misreads the nature and intent" of Sheffield's actions, the company said it would not be taking any steps to stop the merger from closing. By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Abu Dhabi’s Adnoc puts crude capacity at 4.85mn b/d
Abu Dhabi’s Adnoc puts crude capacity at 4.85mn b/d
Dubai, 2 May (Argus) — Abu Dhabi's state-owned Adnoc has nudged up its self-reported crude production capacity to 4.85mn b/d, from 4.65mn b/d previously. The UAE state energy giant did not formally announce the increase but updated the figure on its website. It did something similar when its capacity reached 4.65mn b/d in late 2023, up from 4.5mn b/d in the middle of last year. This latest hike takes the company a step closer to its long-term 5mn b/d crude capacity target, which it aims to reach by 2027. Adnoc set the 5mn b/d target back in 2018 when its capacity was 3.5mn b/d. At that time, the company said it was aiming to deliver the increase by 2030, but in November 2022 it brought the timeframe forward by three years, citing the "UAE's robust hydrocarbon reserves". The change in timeline had been expected, with sources telling Argus earlier that year that discussions had been taking place in the upper echelons of Adnoc about significantly accelerating its capacity growth plans . Given the speed at which the company has been delivering capacity gains over the past few years, and how close it is to meeting its target already, it is not inconceivable that Adnoc will reach 5mn b/d ahead of schedule. Put your best foot forward The UAE's rising capacity comes as Opec+ producers engage with independent agencies to update their respective crude output capacities for use in production policy decisions from 2025. At their meeting in June last year, all Opec+ members committed to undergo an external assessment of their sustainable capacities in the first half of 2024 by three independent consultancies, IHS, Wood Mackenzie and Rystad. The updated capacity assessment will help address a key criticism of the Opec+ production restraint agreements in their current format, namely that many of the countries involved have been cutting output from a baseline level of production that they can no longer actually deliver, in most cases due to natural decline. The UAE has been one of a handful of countries in the group that has been raising its capacity over the past few years. This means it should, in theory, benefit from the latest assessment, as a higher accepted capacity will afford it a higher production baseline under any Opec+ agreements struck from 2025 onwards. By Nader Itayim Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Shell's 1Q profit supported by LNG and refining
Shell's 1Q profit supported by LNG and refining
London, 2 May (Argus) — Shell delivered a better-than-expected profit for the first quarter of 2024, helped by a strong performance from its LNG and oil product businesses. The company reported profit of $7.4bn for January-March, up sharply from an impairment-hit $474mn in the previous three months but down from $8.7bn in the first quarter of 2023. Adjusted for inventory valuation effects and one-off items, Shell's profit came in at $7.7bn, 6pc ahead of the preceding three months and above analysts' estimates of $6.3bn-$6.5bn, although it was 20pc lower than the first quarter of 2023 when gas prices were higher. Shell's oil and gas production increased by 3pc on the quarter in January-March and was broadly flat compared with a year earlier at 2.91mn b/d of oil equivalent (boe/d). For the current quarter, Shell expects production in a range of 2.55mn-2.81mn boe/d, reflecting the effect of scheduled maintenance across its portfolio. The company's Integrated Gas segment delivered a profit of $2.76bn in the first quarter, up from $1.73bn in the previous three months and $2.41bn a year earlier. The segment benefited from increased LNG volumes — 7.58mn t compared to 7.06mn t in the previous quarter and 7.19mn t a year earlier — as well as favourable deferred tax movements and lower operating expenses. For the current quarter, Shell expects to produce 6.8mn-7.4mn t of LNG. In the downstream, the company's Chemicals and Products segment swung to a profit of $1.16bn during the quarter from an impairment-driven loss of $1.83bn in the previous three months, supported by a strong contribution from oil trading operations and higher refining margins driven by greater utilisation of its refineries and global supply disruptions. Shell's refinery throughput increased to 1.43mn b/d in the first quarter from 1.32mn b/d in fourth quarter of last year and 1.41mn b/d in January-March 2023. Shell has maintained its quarterly dividend at $0.344/share. It also said it has completed the $3.5bn programme of share repurchases that it announced at its previous set of results and plans to buy back another $3.5bn of its shares before the company's next quarterly results announcement. The company said it expects its capital spending for the year to be within a $22bn-$25bn range. By Jon Mainwaring Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more