Oilfield Services Are Set For Years Of Profits – EMEA TRIBUNE Breaking News, World News, Latest News, Top Headlines – EMEA TRIBUNE

Oilfield services providers are confident that a prolonged upcycle will keep them very busy in coming years as the U.S. shale patch returns to growth and international drilling activity struggles to compensate for barrels likely to be lost from Russia.

As service providers reported first-quarter earnings last month, their top executives noted that the current tightness in oil and gas markets, in North America and internationally, is setting up “fantastic” conditions for the industry for years to come.

Pricing power is back in the hands of the OFS crew, as exploration and production companies are looking to pump more oil and gas amid energy security concerns and a supply tightness that was already present even before the Russian invasion of Ukraine. Moreover, emerging tightness in the global capacity to boost supply is “extremely favorable for pricing power” of the oilfield services firms, as Olivier Le Peuch, the CEO of the world’s biggest, Schlumberger, said on the Q1 earnings call.

A very tight labor market is the key constraint to the industry’s ability to take on more drilling jobs, executives noted. Labor shortages, as well as supply chain bottlenecks and cost inflation, are also the key constraints to U.S. shale production growth.

U.S. Drilling Activity Returns

Still, for oilfield firms, tight oil and gas markets and tight capacity for production are boosting pricing for their services, finally rewarding the sector with higher operating income and margins.

$100 oil and tight global markets are incentivizing activity in the U.S. shale patch, although many public companies continue to maintain capital discipline, defying the skeptics who expected them to throw caution to the wind as early as last year.

The U.S. rig count increased last week to 698, which was 258 rigs higher than this time in 2021 and the highest count since April 2020, according to the latest data from Baker Hughes. Drilling has picked up substantially since the Russian invasion of Ukraine, adding 48 rigs over the last nine weeks.

Related: OPEC+ Agrees To Boost Production By 432,000 Bpd In June

The EIA expects total U.S. crude oil production to average 12.0 million bpd in 2022, up by 800,000 bpd from 2021. Production is set to rise by another 900,000 bpd in 2023 to average nearly 13.0 million bpd, beating the previous annual average record of 12.3 million bpd from 2019.

The tight market for drilling services makes oilfield services firms optimistic about their ability to increase pricing and profits.

“Very Busy Years Ahead”

“Current oil supply, tightness, and commodity price levels strengthen my confidence in the accelerating multi-year upcycle and very busy years ahead for Halliburton,” Jeff Miller, CEO at the largest fracking services provider, Halliburton, said on the Q1 earnings call in April.

“I believe this pivot to short cycle barrels is great for Halliburton and sets up fantastic conditions for us to outperform,” he noted.

Halliburton’s hydraulic fracturing fleet is sold out, and the overall market “appears all but sold out for the second half of the year”, Miller added.

Baker Hughes, for its part, sees “multiple years of spending growth” from its customers as they look to meet the world’s energy needs, while it also noted the constraints to U.S. shale growth.

“In North America, drilling and completion activity continues to move solidly higher with further increases expected over the course of the year. Although current oil and gas prices would normally suggest a stronger increase in activity, the combination of E&P capital discipline and industry shortages in labor and equipment is likely to keep short-term incremental increases more moderate in nature,” CEO Lorenzo Simonelli said.

Baker Hughes is also “starting to get good pricing leverage and getting net pricing, particularly in North America, but also in some of the international markets”, Simonelli added.

Andy Hendricks, CEO at Patterson-UTI, noted that “The fundamentals for oil and gas over the last six months and the resulting rapid increase in demand and activity for equipment and services have led to a strong pricing environment in the U.S. drilling and completions markets. For example, I do not recall another period where leading-edge dayrates for drilling rigs are moving up this quickly.”

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The company expects the market for its equipment and services to continue to remain tight and for pricing to continue to increase.

Labor Shortages 

Overall, oilfield services providers are making a comeback after the 2020 COVID-related slump and the wave of bankruptcies that followed among U.S. producers and OFS firms.

But there are drags on the oilfield services sector, putting a cap on drilling activity in the shale patch. The biggest hurdle of all is the shortage of labor.

“The single biggest challenge right now is labor and everyone knows it is right. This is countrywide, but certainly in our industry, after a big downturn that pushed a lot of people out of our industry. You know, there’s high-paying jobs in more pleasant conditions,” Chris Wright, CEO at Liberty Oilfield Services, said.

The market for fleets and services is also tight, Wright added, noting that “Not everyone that wants our fleet or wants an extra fleet today, frankly, is going to get one.”

Still, the outlook is bright for the oilfield services sector, as Schlumberger’s CEO said, commenting on the outlook of the world’s top services provider:

“The confluence of elevated commodity prices, demand-led activity growth, and energy security are resulting in one of the strongest outlooks for the energy services industry in recent times—reinforcing the market fundamentals for a stronger and longer multiyear upcycle—absent a global economic setback.”

By Tsvetana Paraskova for Oilprice.com

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