Latest market news

Service sector upbeat as US drillers boost spending

  • Market: Crude oil
  • 31/01/22

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
Company4Q4Q20±%FY21FY20±%
Profit
Halliburton824-235na1,457-2,945na
Schlumberger601374611,881-10,518na
Baker Hughes294653-55-219-9,940na
Revenue
Halliburton4,2773,2373215,29514,4455.9
Schlumberger6,2255,5321322,92923,601-2.8
Baker Hughes5,5195,4950.420,53620,705-1.0
North America revenue
Halliburton1,7831,238446,3715,73111
Schlumberger1,2811,1679.84,4665,478-18
Baker Hughesnanananana

Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
04/11/24

Oil services upturn takes a pause for breath

Oil services upturn takes a pause for breath

New York, 4 November (Argus) — The boom in demand for oil field services is showing signs of wavering in the short term as international customers signal greater caution around spending and the outlook for US shale remains challenged. Upstream spending growth in the North American onshore market is expected to be flat in 2025, with low natural gas prices, drilling efficiencies and further consolidation among producers in the shale patch all exerting downward pressure. Given a mixed international outlook, one bright spot will be offshore markets, and deepwater in particular, according to investment management firm Evercore ISI. "The solid growth years of 2023 and 2024 are over as the cycle resets," senior managing director James West says. "We view 2025 as an aberration in a long-term, albeit slower, growth cycle." In the near term, the sector's attention will be focused on spending plans by top producers including state-run Saudi Aramco and Brazil's Petrobras, as well as any signs of a potential recovery in Chinese oil demand given the government's latest stimulus efforts to kick-start growth. The sector has had to contend with more than $200bn of shale mergers and acquisitions over the past year, which has shrunk the pool of available customers, and led to oil field services providers beginning their own round of consolidation. Moreover, with capital discipline remaining the rallying cry, significant productivity gains have enabled producers to do more with less. Its immediate challenges were put into stark contrast this week by oil's renewed plunge, this time on the back of Israel's decision to spare Iran's energy infrastructure from retaliatory strikes. SLB, the biggest oil field services contractor, has attributed recent price volatility to concerns over an oversupplied market owing to higher output from non-Opec producers, as well as questions over when the cartel will return barrels to the market and weak economic growth. That spurred some customers to adopt a "cautionary approach" when it came to activity and spending in the third quarter. Gas to the rescue But SLB remains upbeat over the long-term outlook, given the current emphasis on energy security, a key role for natural gas in the energy transition, and expectations that oil will remain a "large part" of the energy mix for decades to come. Gas investment remains robust in international markets, particularly in Asia, the Middle East and the North Sea. "While short-cycle oil investments have been more challenged, long-cycle deepwater projects globally and most capacity expansion projects in the Middle East remain economically and strategically favourable," SLB chief executive Olivier Le Peuch says. Exploration successes in frontier regions from Namibia to Suriname are also unlocking vast reserves that only serve to bolster confidence in the offshore market. Global offshore investment decisions will approach $100bn this year and in the next 2-3 years, adding up to more than $500bn for 2023-26, according to Le Peuch, representing a "growth engine for the industry going forward". Meanwhile, Baker Hughes expects to capitalise on a growing market for gas infrastructure equipment. The company forecasts natural gas demand will grow by almost 20pc by 2040, with global LNG demand increasing at a faster rate of 75pc. "This is the age of gas," chief executive Lorenzo Simonelli says. The top services firms see limited short-term growth prospects for North America, with the exception of the Gulf of Mexico. Hydraulic fracturing services provider Liberty Energy plans a temporary reduction in its fleet in response to slower customer activity and market pressures. And SLB says any potential pick-up in gas rigs could be offset by a further decline in oil rigs owing to efficiencies. By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Find out more
News

Asian demand might cap WTI availability for Europe


04/11/24
News
04/11/24

Asian demand might cap WTI availability for Europe

London, 4 November (Argus) — Asia-Pacific refiners have increased their intake of US light sweet WTI crude for November loading and could remain keen buyers in December, potentially limiting supply for Europe. Asian refiners have bought around 1.3mn b/d of WTI loading in November, traders say, up from roughly 800,000 b/d loading in October, and surpassing average flows of 1.15mn b/d to the region this year. Arbitrage economics from the US to Asia are better than those to Europe at present, traders say. And firmer refining margins for naphtha-rich crudes in Asia-Pacific could prompt refiners to maintain high purchases of WTI in December. Asian buyers tend to seek WTI around two weeks before European refiners owing to the longer shipping times, affecting availability of the grade in Europe. European interest in November-loading WTI has been limited by refinery maintenance, exacerbated by an abundance of cheap light sweet crude in the region following the sudden restart of Libyan crude exports in October. The rebound in Libyan supply after a period of disruption pressured differentials for competing light sweet grades from the North Sea and Mediterranean regions. North Sea Forties and Ekofisk and Algerian Saharan Blend fell to their lowest in at least two months against North Sea Dated in mid-October. At the same time, delivered WTI has been supported by high freight rates. Shipping costs to take an Aframax from the US Gulf coast to Europe were 62pc higher on average in October than in September, narrowing WTI's discount to North Sea light sweet crudes. Abundant and affordable WTI has tended to act as a cap on light sweet crude prices in the region. But the higher freight costs have meant that WTI has been one of the more expensive crudes in the North Sea Dated basket. WTI was at parity to light sweet Oseberg in early October, up from a discount of around $1/bl a month earlier. WTI has set the benchmark as the lowest-priced crude only six times in the past two months, compared with 26 occasions over the same period last year. But European demand for crude is expected to rebound in December, as regional refineries ramp up following autumn maintenance. Ekofisk has already added around 60¢/bl relative to WTI since mid-October, briefly moving from a discount to a premium to the US grade over 25-29 October. Any WTI supply tightness in the final weeks of the year, and continued firm demand in Asia, could limit WTI flows to Europe and support light sweet crude prices. Arbitrage effects For some Asia-Pacific refiners, a workable WTI arbitrage has helped pressure the price of alternative supplies. Indian refiner IOC opted to buy two cargoes of WTI in a tender which closed on 17 October instead of the west African crude it typically favours. The refiner bought a cargo of WTI each from US-based Occidental Petroleum and Japanese trading company Mitsui for delivery in December and January to the western port of Vadinar and eastern port of Paradip, market participants say. Lacklustre interest from Indian and European buyers, and plentiful light sweet crude supply, have since combined to pressure some Nigerian crude differentials, pushing them down by 20¢-$1.15/bl against North Sea Dated in October. This has helped reinvigorate demand and clear more November shipments on the eve of the December-loading cycle. IOC subsequently bought a shipment each of Nigerian Agbami from Chevron and Angolan Nemba from an undisclosed seller in a tender which closed on 24 October. But up to a dozen November-loading Nigerian cargoes remained unsold as of 29 October, according to traders. By Lina Bulyk Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Opec+ delays supply return for one month


03/11/24
News
03/11/24

Opec+ delays supply return for one month

London, 3 November (Argus) — Eight Opec+ members that were due to begin raising crude output from December have opted to delay the restart by one month, the Opec secretariat said today, 3 November. The eight ꟷ Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman ꟷ had already postponed, by two months, a plan to start returning supply, over concerns about worsening economic indicators, and in turn, weakening oil prices. With these concerns still very much live, the group has decided again to delay the start of a move that would have added 180,000 b/d to global supply in December. The eight "have agreed to extend the November 2023 voluntary production adjustments of 2.2mn b/d for one month until the end of December 2024," the Opec secretariat said. As was the case with the postponement in September, the secretariat did not give any explicit rationale for the move. This one month deferral means a decision about whether to start returning supply in January, or to delay again, will coincide with Opec and Opec+ group meetings that are scheduled to take place in early December. Delegate sources told Argus after the first postponement that its decision was also to allow some of the group's serial overproducers, namely Iraq, Russia and Kazakhstan, time to improve compliance with their pledged output targets. The secretariat today again made a point of underlining the wider group's "collective commitment to achieve full conformity," with a focus on those three countries. Benchmark North Sea Dated crude was assessed by Argus at $73.48/bl on Friday, 1 November, around $20/bl below where it was before Opec+ announced its initial output cut in October 2022. The alliance has reduced output by 4mn b/d since then, Argus estimates. Much of the oil price weakness is down to an increasingly gloomy demand outlook, primarily driven by worse-than-expected consumption growth in China. Global oil supply is also higher than Opec+ would prefer — including from its own overproducers — and is due to rise further, with the US, Guyana and Canada driving gains. The IEA forecasts a supply surplus of more than 1mn b/d in 2025, even in the absence of any increase from Opec+. By Nader Itayim and Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

TMX exports reach new record in October


01/11/24
News
01/11/24

TMX exports reach new record in October

Houston, 1 November (Argus) — Crude exported via the 590,000 b/d Trans Mountain Expansion (TMX) pipeline reached a new high in October at 413,000 b/d. TMX loadings out of Vancouver were up by 103,100 b/d from September and surpassed the previous record of 368,800 b/d in August by 12pc, according to data by analytics firm Vortexa. The exports loaded onto 24 Aframax tankers, up from an average 20 per month, according to Teekay Tankers in an earnings call. Of those 24 Aframaxes, nine went directly to Asia-Pacific ports while at least four went to the Pacific Area Lightering zone (PAL), where the vessels discharged onto very large crude carriers (VLCCs) for Asia-Pacific. The rest traveled to ports along the US west coast. China overtook the US west coast as the largest importer of TMX crude in October, increasing its loadings from 139,900 b/d in September to 208,300 b/d, or over 50pc of the total volume. A record amount of TMX crude still departed for the US west coast in October at 204,700 b/d, up 20pc from the prior month. Future imports into the region might be stifled in the short-term, with US independent refiner PBF planning to run less TMX crude during the fourth quarter amid higher prices and ongoing maintenance on equipment used to remove impurities from heavy sour crude, like the grades exported from TMX. Long-term, TMX transportation rates could become more economical for California refineries, PBF said in its third quarter earnings call. Canadian high-TAN crude fob Vancouver averaged a roughly $11.35/bl discount to December Ice Brent in August, when October cargoes were trading, while heavy sour Cold Lake averaged a roughly $10.60/bl discount. By Rachel McGuire Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Lyondell Houston refinery closure to begin in January


01/11/24
News
01/11/24

Lyondell Houston refinery closure to begin in January

Houston, 1 November (Argus) — LyondellBasell's 264,000 b/d Houston, Texas, refinery will begin shutting units in January and complete its previously-announced exit from the crude refining business by the end of the first quarter 2025. The Houston plant will shut a crude distillation unit (CDU) and coking unit in January followed by a secondary CDU, coking unit and the refinery's fluid catalytic cracking unit (FCC) in February, the company said in an earnings presentation today. The February unit shutdowns will include the closure of "ancillary units", LyondellBasell said. The company today re-iterated its time line of exiting the refining business by the end of the first quarter and continues to evaluate an advanced recycling or renewable fuels conversion at the plant. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Generic Hero Banner

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