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 | |
