Service sector

Services sector bullish as US drillers increase spending

The biggest oil service companies expect customer spending in North America to rise in 2022 as producers ramp up drilling to capitalize on crude prices that have hit a seven-year high.

“It’s a momentum I haven’t seen in a long time,” Halliburton chief executive Jeff Miller said last week after predicting a 25% increase in spending by US drillers. The largest provider of hydraulic fracturing (fracking) services increased its dividend from 4.5¢/share to 12¢/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 the industry is in the throes of a multi-year bull cycle – at home and abroad – supported by declining spare capacity as demand returns from Covid-19, after a period of underinvestment. “The tight growth in oil supply and demand beyond the pre-pandemic peak should lead to a substantial increase in capital spending,” said Schlumberger Chief Executive Olivier Le Peuch.

Investors and financiers at the Argus Americas Crude Summit in Houston, Texas, also predicted a rebound in spending last week, with the most productive Permian Basin taking the lion’s share, but regions such as the Bakken and Scoop and Stack in Oklahoma are also seeing increased investment. Drilling in the United States will remain led by private operators, while publicly traded peers will continue to focus on shareholder returns, with any growth likely to be modest.

Part of the projected increase in spending is due to inflation in the shale play, as demand for drilling equipment accelerates. Service pricing pressures are already being reported in some of the larger shale basins such as the Permian, with anecdotal evidence of labor shortages and hydraulic fracturing equipment shortages. Supply chain disruptions have also persisted since last year.

‘Solder’

The well completion market in North America is nearing 90% utilization, and Halliburton says it’s “spent.” Prices for its hydraulic fracturing fleets are also rising. “The anticipated growth in demand for equipment gives us an avenue to increase prices throughout the year,” Miller said.

Halliburton has already secured higher prices across all service lines, including drilling, cementing, drill bits and artificial elevation. Meanwhile, increased trucking, labor and sand costs are passed on to customers. Many operators reduced their inventory of drilled but incomplete wells last year to cut costs, a trend that is now reversing. “This will further increase the call for equipment as operators add rigs throughout the year,” Miller said. Baker Hughes chief executive Lorenzo Simonelli said the performance of its oil services business was “still below our broader targets” due to commodity price inflation and supply chain issues. supply, but sees progress in resolving logistical constraints.

Schlumberger expects customer capital spending to increase by at least 20% in North America this year, with international spending expected to increase by more than 10%. Le Peuch expects “more widespread” improvements in service pricing in response to market conditions as capacity tightens. The upbeat outlook comes as a new report from US private equity firm Kimmeridge Energy Management warns shale producers against returning to their old fiscally irresponsible ways.

Even though shale explorers were among the best performers last year, their valuations are stagnating. If the sector wants to attract investors, it needs to convince Wall Street that it can resist the temptation to drill full throttle even as oil prices hit new highs, he says. “To maintain discipline through an upward cycle, management teams will have to make tough decisions,” Kimmeridge says.

By Stephen Cunningham

2021 results of oil service companies

M$

Society

4Q

4T20

±%

FY21

FY20

±%

profit

Halliburton

824

-235

n / A

1,457

-2,945

n / A

Schlumberger

601

374

61

1,881

-10,518

n / A

hugue baker

294

653

-55

-219

-9,940

n / A

Income

Halliburton

4,277

3,237

32

15,295

14,445

5.9

Schlumberger

6,225

5,532

13

22,929

23,601

-2.8

hugue baker

5,519

5,495

0.4

20,536

20,705

-1.0

Revenue in North America

Halliburton

1,783

1,238

44

6,371

5,731

11

Schlumberger

1,281

1,167

9.8

4,466

5,478

-18

hugue baker

n / A

n / A

n / A

n / A

n / A