Oil service sector talks up transition amid recovery

A recovery in oil prices that is encouraging some US drillers to get back to work — along with brighter upstream investment prospects for leading Opec+ producers as last year's drastic supply cuts are reversed — has not distracted service sector efforts to diversify into clean energy technologies.

The biggest US oil field service companies are expanding into renewables and other lower-carbon sectors, doubling down on a strategy that they embarked upon before last year's Covid-related crash. Baker Hughes, Schlumberger and Halliburton are all seeing opportunities offered by the energy transition as the oil industry faces unrelenting pressure to clamp down on emissions.

Baker Hughes, which is rebranding itself as an energy technology company, predicts "significant growth" in its transition initiatives in the next 5-10 years — including hydrogen and carbon capture, utilisation and storage — as the "clean energy ecosystem continues to evolve". The scale of its clean energy ambitions can be seen in a recent tie-up with Norway's Borg CO2 on a carbon capture and storage hub that aims to sequester up to 90pc of emissions from a cluster of industrial sites. "That's a great opportunity for us because we think those industrial clusters are going to continue to emerge elsewhere in the world as well," Baker Hughes chief executive Lorenzo Simonelli says. The company also expects a "step-up" in its LNG activities.

Schlumberger launched its Transition Technologies portfolio during the second quarter, which it says can help customers meet their climate goals by eliminating flaring, minimising carbon footprints and expanding electrification. The company is also targeting net zero emissions across its value chain by 2050.

Halliburton says that another four firms have joined its clean energy technology lab in Houston as part of its goal to "advance and scale cleaner, affordable energy". The company, which is the largest hydraulic fracturing (fracking) services provider, also flags high demand for low-emissions fracking equipment amid limited supply. Earlier this year, it carried out the first grid-powered fracking operation. It is also deploying digital technology and automation in drilling operations as operators pursue continued cost savings.

Oil be back

But the sector is still gearing up to take advantage of what Halliburton chief executive Jeff Miller describes as the early stages of a "multi-year up-cycle" in the oil sector, with international and North American markets expected to grow simultaneously for the first time in seven years, as global oil demand recovers from the coronavirus slump. "We anticipate double-digit annual international spending growth at least over the next couple of years" led by national oil companies, Miller says. Baker Hughes expects a similar level of growth in the international sector, led by increased drilling in the Middle East and Russia, and sees that momentum continuing into 2022.

Drilling and completion spending in North America will "also grow double digits annually over the next two years", Miller predicts, although it will not return to pre-pandemic levels. Baker Hughes sees modest growth in US oil field services for the remainder of this year, with privately owned shale drillers seeking to capitalise on higher oil prices while their publicly listed peers exercise drilling restraint — a trend that is also expected to continue into next year. The increasing demand for oil field services equipment should help the sector to start raising its prices. "Pricing is beginning to return in North America now and is expected to lag internationally where contract durations are longer," Miller says.

By Stephen Cunningham